A Guide to First-Time Car Loans for College Students
College students can face difficulty securing a first-time car loan, but this guide can make the process as smooth as possible.
Written by John Pickhaver
Reviewed by Jessica Barrett
First-time car loans for college students can be difficult to secure since college students may not have a steady income or have little to no credit history. But many lenders approve first-time loans for college students. Finding a cosigner or improving your credit can greatly increase your chances of getting a car loan.
Maybe you survived high school by taking the bus or catching a ride with a friend, but to get around in college, it may be time for a new ride. Unless you’re able to pay upfront in all cash, you’ll likely need to apply for an auto loan. Lenders are more resistant to offering loans to younger applicants since they typically lack credit, have low incomes, and carry higher debts.
But that doesn’t mean you can’t give it the old college try! The
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* checking your rate won’t affect your credit score
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* checking your rate won’t affect your credit score
How do car loans work?
A loan for a car is a secured loan that enables you to finance your vehicle for a certain period. When the bank or another loan provider lends you money to purchase a car, you consent to repay the entire sum. That’s in addition to interest payments which come in installments each month over a determined loan term.
Your car functions as collateral for your debt, which makes it secure. If you fail to pay each month, your loan provider can repossess your vehicle. But if you keep up with your payment plan, you will own your vehicle outright when the loan period concludes.
Since lenders consider factors like debt-to-income (DTI) ratios and your credit history when reviewing applications for loans, it is often challenging to secure a first-time loan for your car as a college student. That said, there are still ways to lock down a loan as a college student.
Advantages of car loans for college students
While it may be more difficult to get a first-time car loan as a college student, applying for one as a college student has the following advantages:
- Getting a car loan affords you the chance to improve your credit score
- Companies offer enticing rebates for new college grads to lessen the price of financing
- Good grades could land you a more affordable auto loan
What makes it hard to get a first-time car loan as a college student?
If you’re a college student looking to secure an auto loan, you’ll have more hurdles to jump than the average loan applicant. Here are some of the most common challenges you could face:
- It’s difficult to apply alarge down paymentto the total cost of the car without a sizable savings account
- When you’re in school full time, it’s hard to get a job—and it’s hard to get a loan when you don’t have a job
- Gen Z’s average credit score is 674, according toExperian, and a low score makes lenders less likely to approve your application
Despite the obstacles, many loan providers offer finance options to college students, and in some cases, you can use your student status to help your case.
For example, you can offset your lower credit score with a higher GPA because loan providers may consider high marks in the classroom to be indicative of your responsibility and offer you favorable terms as a result.
Key Takeaway: Having a low credit score or lack of credit history can harm your odds of securing a loan. However, lenders still create loan options with college students in mind.
How to get a first-time loan as a college student
Securing an auto loan as a college student comes with challenges, but you can make it happen if you take these steps.
Take stock of your credit and finances
Start by assessing your financial situation, which revolves around your credit score.
Typically, financial professionals aim for a score of 661 or above for an auto loan, but it is not impossible to secure approval with a score that is lower. Remember, if your credit score is significantly lower, the odds are your loan will include a higher rate of interest. If your credit score is under 500, it will be difficult to get any borrower to give you a loan.
To determine your debt-to-income (DTI) ratio, add up all your expenses for the month and divide that by your monthly gross income. Loan providers will utilize your DTI ratio to determine your chances of affording the loan, and the lenders will usually put a ceiling between 45% and 50%.
In other words, if an auto loan accounts for more than half of your actual income, a loan provider is unlikely to approve you.
Consider a loan from a credit union
You can secure an auto loan from a dealership, online lender, bank, or credit union. Banks tend to be the most common choice, but chances good that are a credit union will issue you a lower interest rate and offer greater odds of being approved. Since credit unions are owned by the customers, they are typically more accommodating when it comes to special loan scenarios like a first-time loan application.
Get pre-approved before you shop for cars
Whatever your financial situation is, you’re better off getting preapproved for an auto loan before showing up at the dealership. When you’re pre-approved, you’re in a position to become a smarter shopper. Instead of waiting for the dealership to tell you a price, you can tell them what you’re approved for and negotiate a lower cost.
Consider a co-signer
Let’s face it—most college students don’t have high incomes. Working part-time or being unemployed while you focus on your studies can put you in a tough spot when it comes to getting approved for your first auto loan.
A co-signer, however, could be the key to getting you behind the wheel of a new car! A co-signer on your loan enters an agreement to cover your loan payments if you fail to stay on track with the payment plan. This is also one of the most ideal ways to secure approval for an auto loan if you have a low credit score.
Be prepared to wait for the best deal
The bottom line is if your financial situation and credit score are not in a good place, and you can’t get someone to co-sign, your optimal option is to have patience. Wait it out until you can comfortably afford a car with the right resources.
MORE: How to save on car insurance with a good student discount
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Can I get a car loan as a college student?
If you have a reliable income and a debt-to-income ratio that isn’t high, your approval odds for an auto loan as a college student are good. You’ll increase your odds if you excel in the classroom, get a co-signer, or have excellent credit.
Do car dealerships look at student loans?
Lenders factor in your debt-to-income (DTI) ratio, which includes student loans. Your payment history carries weight in the approval process, so if your student loans are not in good standing, you will likely not be approved for a car loan.
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