Can students get car loans?
Yes, students can get car loans, and some financial institutions have special student auto loan programs. That said, students may be more heavily scrutinized than a typical borrower. A student can increase their chances of loan approval if they have good credit, steady income, a down payment, and a cosigner. They also may be able to take advantage of manufacturer rebate programs or receive flexible loan terms from lenders who reward students for high grade-point averages.
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How to get a car loan as a student
Consider these strategies as you prepare to get approved for an auto loan as a student:
Check your credit score
If your credit score isn't in great shape, you may want to work on building it up. In the FICO® scoring system, credit scores range from 300-850. As your credit score increases, so do your chances of getting loan approval and more favorable interest rates, according to Experian. Paying your bills on time is a great way to improve your credit score. Pay down existing debt, and clear up late bills before applying for a loan.
Becoming an authorized user on another person's credit card (who has good credit) can help boost your credit score. When the credit bureaus report on their use of the card, it's also attributed to your credit score if the credit card issuer reports for authorized users.
Secure stable income
Having a steady job or a consistent source of income that will cover your monthly payments may demonstrate your ability to manage paying off the loan.
Save for a down payment
The larger the down payment, the less money you'll need to borrow, which lowers your risk to the lender. Between 10-20% of the purchase price is the range of what you might offer as a down payment on a car loan, according to Capital One.
Choose a vehicle you can afford
Consider choosing a budget-friendly vehicle rather than a high-end model. The payments will be lower, and you're more likely to be approved for a smaller loan.
Shop around for the best interest rates
Check different lenders that offer auto loans for students. Look at banks, credit unions, and online lenders to find the best interest rates and terms for you.
Get a cosigner
One of the best ways to get approved for student auto loans is to have a cosigner. A cosigner can be a parent, relative, or another adult with established good credit who agrees to apply for the loan with you. Be aware that if you can't repay the loan, your cosigner is also responsible for the balance, and any delinquent loan payments could negatively affect both your credit scores. Learn more about what you can afford by using our car loan calculator.
Pro tip:
Consider both the monthly cost and the length of your loan when deciding which car loan is the best for you. Consumer Reports has a chart showing the differences between the loan length in years and the amount of interest you'll pay altogether.
Are student auto loan programs available?
Yes, some manufacturers offer rebates or flexible lease or financing terms to recent or soon-to-be college graduates. And some lenders offer more favorable financing or discounts on monthly payments if a student has a high enough grade point average. Students can also find out if their institution has any student auto programs; some schools partner with lenders to offer discounts and special auto loans for students.
Is it better to lease or buy a car as a student?
Your financial circumstances, driving practices, and long-term plans can help you decide whether it's better to lease or buy a car as a student.
Leasing a car generally offers warranty coverage, lower upfront costs, and lower monthly payments than a car loan. However, leases typically come with mileage limits and fees for wear and tear, and your payments won't go toward owning the car. If you don't drive frequently or for long distances, a lease may be the better option. If you choose this option, read your lease contract carefully and understand the fees you'll be responsible for.
Buying a new car as a student may have its own advantages compared to leasing, including long-term ownership and cost savings over time. Buying also allows you to sell or trade in the car if needed. Financing a car requires a down payment in addition to monthly payments. If you've saved for a down payment, have longer-term income for monthly payments, and are looking for longer-term savings and benefits, buying a car may be a better option than a lease.
Car insurance for students with car loans
Students who secure an auto loan or lease must have auto insurance. Lenders and leasing companies typically require comprehensive car insurance and auto collision coverage in addition to your state-required liability coverage.
If you're switching from one car to the next, you should transfer your insurance to your new car. You can typically do this online or over the phone. Most insurers have a grace period for updating your policy — usually 7 to 30 days.
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