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Car Loans for College Students: A How-To Guide

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Content was accurate at the time of publication.

In a tough market, it can be hard to find an affordable car loan, but it can be even harder when you’re a college student. That’s because getting an auto loan requires two things college students are often short on: financial stability and a well-established credit history.

You can, however, take steps to improve your chances of qualifying for a car loan, even if you’re in school full-time. To do this, you can start by checking if your school partners with any financial institutions that offer car loans for students and finding someone willing to be your cosigner.

School affiliations

As a student, you may find car loan options at several different places, including your bank, an online lender or a car manufacturer. But one of the best places to start looking is your school.

In some cases, financial institutions partner with schools and may provide special loan offers for students. For instance, USC Credit Union is connected to the University of Southern California (USC) and allows for enrolled USC students to become members. Members can then access financial products such as auto loans.

Banks and credit unions

Some banks and credit unions offer programs to help students finance vehicles. These college student auto loan programs — such as the college auto loans offered by Provident Credit Union — may come with flexible eligibility requirements, like low or no credit score requirements.

Credit union auto loans, in particular, tend to come with some of the lowest interest rates available. According to the Credit Union National Association (CUNA), the median rate for a $40,000 car loan from a credit union with a six-year term is 10.27% for borrowers with poor credit On the other hand, the rate for that same type of loan at a bank could be as high as 17.21%.

Dealerships with car loans for students

Another way to find a car loan is by going through a vehicle manufacturer since some major car companies have special car-buying deals for students. Keep in mind that these deals are typically limited to specific vehicle models, and not all manufacturers offer student car loans.

Here are a few examples of manufacturer’s car-buying deals for students and recent graduates:

  • GM College Appreciation offers $500 off certain new Chevrolet vehicles. Borrowers must be current college or graduate students or have graduated from a two- or four-year college within the last two years. Qualifying borrowers can also sponsor their spouses.
  • Ford College Student Purchase Program provides bonus cash of up to $500 when you lease and up to $750 when you purchase from a limited list of 2023 and 2024 models.
  • Honda Financial Services offers $500 toward a down payment or the total cost of your car on certain models. To qualify, you’ll need to have graduated from college within the last two years or will graduate within the next six months.

Kia also has the Happy Kia First Time Buyer Program, which offers loans for new and used vehicles. You can qualify for one of these loans with no credit and no down payment. However, you must have a monthly income of at least $2,000 — a requirement that may be difficult for some college students to meet.

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Taking on a car loan can be a financial burden for anyone, but it’s an especially big commitment for students with limited resources. As with any car financing, students qualify based on a combination of their credit and income as well as their down payment amount, all of which can make it difficult to qualify.

If you do take on a car loan, you’ll pay back the funds (plus interest) in fixed monthly installments over a set repayment term. Keep in mind that choosing a shorter repayment period can save you money on interest charges but may come with higher monthly payments. Longer terms can have lower monthly payments but higher interest.

Unlike student loans and credit cards, car loans are secured with your vehicle as collateral. Therefore, students should bear in mind that if they fall behind on payments their car can be repossessed.

 Can I use a student loan to buy a car?
While some student loans cover transportation and vehicle-related expenses, it’s generally prohibited to use student loans to buy a car. It’s also not a great idea to buy a car with a student loan since, unlike car loans, student loans take an average of 20 years to pay off. That means you could still be paying off the loan long after you get rid of the car.

Challenges of getting a car loan as a student

As a college student, you’re probably not earning big bucks, and it’s unlikely you have a long, positive history with credit. As a result, these are some of the roadblocks you might face while shopping for a car loan.

Limited credit experience

There are some student car loans available for people with no credit, but as a general rule of thumb, having good credit means qualifying for more loans with affordable terms.

Unfortunately, if you haven’t had at least one credit card or loan in the past six months, you may not have a credit report or score. Plus, if you have poor credit, it can take a minimum of 30 to 45 days to increase your scores — and even longer than that to make real improvements.

Limited income

Lenders view your income as evidence of your ability to afford a car loan payment. If your monthly debt payments (including the car loan) account for more than 50% of your gross (pre-tax) income, you might have trouble getting approved for a car loan.

High interest rates

People with no credit, low scores or financial challenges may find they can only get approved for loans with high interest rates. While the average rate on a 60-month car loan is historically high at 8.15% APR, the average rate for a person with a credit score between 501 and 600 is even higher, at 11.86% for new car financing.

Why does your interest rate matter? Because it can increase the cost of your loan by thousands of dollars. For example, at 8.15% APR, a $25,000 loan with a five-year repayment would cost you $5,522 in interest charges, but at 11.86% APR, the charges would amount to $8,261.

Down payment

While traditional advice says you should make a 20% down payment to buy a car, you can find car loans that require no down payment. On the other hand, the more you save for a down payment, the better your chances are of being approved and the more likely you are to qualify for lower interest rates.

High monthly car payments

When interest rates and car prices rise — as they have in recent years — car payments can increase, too. In the third quarter of 2023, Experian reported the average monthly payment on a used car loan was $533. For new cars, it was $726. By comparison, the average monthly car payment for used vehicles in 2021 was $474 and $617 for new.

If you’re motivated to shop around and compare lenders, and you’re flexible about the car you buy, you can improve your chances of getting a car loan. Here are the ways a student can qualify for more and better loans.

Consider a cosigner

A cosigner is someone who agrees to take full, legal responsibility for your loan if you can’t pay it back. By offering to put their money and credit on the line, a cosigner on an auto loan can help increase your chances of being approved.

Build your credit

You might need a few months or more to improve your credit scores before you can get approved for a loan. Here’s what you can do to give your scores a jump-start:

  • Pull all three of your free credit reports off of sites like If you find any mistakes in your credit report, you can dispute credit report errors with the credit reporting agency.
  • Ask a loved one with good credit to add you to their credit card as an authorized user. This allows you to improve your score over time by piggybacking off the primary cardholder’s established credit line and solid payment history.
  • If you’ve had a credit card for at least a year and your scores have improved since you opened it, ask your creditor to increase the card limit.
  • Pay down your credit card balances as much as possible. This can help cut down on your credit utilization ratio and boost your score.
  • For students with no credit, apply for a student credit card. While these cards generally have lower borrowing limits, they also come with flexible eligibility criteria.

Save up for a larger down payment

Making a bigger down payment can help you qualify for an affordable loan. It allows you to borrow less money, reduces your monthly payments and saves you money on interest. To do this, you may need to borrow from family or friends to put more money down or take some time to save extra cash.

Choose a cheaper car

Another way to reduce your loan amount and monthly payments and improve your shot at qualifying for a loan is to find a smaller car loan. In the past, a car with over 100,000 miles was considered over the hill, but modern cars can be reliable past the 200,000-mile mark as long as they’re well maintained.

Research discounts

A discount from the lender or car dealer could be the key to making your loan affordable and getting approved. Check with your local credit union or current bank to see if they have discounted car loans for students, discounts for having good grades or if you can get a rate reduction by setting up automatic payments on the loan.

Some car manufacturers also offer discounts for students or first-time car buyers, but they tend to vary by location, so take the time to do your research and see what’s available.