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Klaus Vedfelt/Getty Images August 31, 2022 Dan Miller is a former contributing writer for Bankrate. Dan covered loans, home equity and debt management in his work. Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing clear, well-researched information that breaks down otherwise complex topics into manageable bites. Bankrate logo The Bankrate promise
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Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our loans reporters and editors focus on the points consumers care about most — the different types of lending options, the best rates, the best lenders, how to pay off debt and more — so you can feel confident when investing your money. Bankrate logo Editorial integrity
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Even if you’re a student or someone else with a limited credit history, there are options to finance a car. While you may not have as many options as someone with a long-established job and credit history, it is possible. The process of finding a car loan as a student looks just like the process would for a postgraduate driver looking to finance. But as you may be on a tighter student budget, matters. This is even more true as average monthly costs are record high, with used cars at $515 and new cars even steeper at $677 in the second quarter of 2022, according to . Follow these steps when you start your car buying process. Figure out a realistic budget. Take advantage of a car payment to determine how much you can afford to spend each month. When you are budgeting be sure to focus on the of the vehicle and not just the sticker price. Save for a down payment. While saving for a could be a challenge as a student, it can mean lower rates and monthly payments. If you have time to wait, the best-case scenario is to save at least 20 percent of the purchase price. But even if you can’t afford that amount, aim for at least a small down payment. Decide what car is right for you. It is important to be realistic about the right car for your needs as a young person. While it may seem enticing to purchase a brand-new car with all the latest features, consider where you’ll be parking it, the number of potential passengers you’ll have and even the price of gas for a more luxurious option. Lock in financing. It is smart to apply for loan ahead of car shopping — in person or online — to ensure you know the amount you can afford and skip out on dealership markups. Depending on the lender, prequalification will mean a soft credit pull. You should also be prepared to share necessary documentation to confirm the information you provide. Negotiate. can be very intimidating, especially for a young person. In the case of car buying as a student, it is wise to bring a trusted adult or family member with you. This way you feel more confident to push for the deal you deserve. But no matter what, remain confident and do not be afraid to walk away. How to improve your chances of loan approval
As with any loan, the most competitive rates, terms and acceptance are given to those with strong credit. And as a student with a small amount of credit history, approval can be a challenge. But there are a number of ways to improve your chances of approval when you’re buying a car as a student. Show a reliable source of income
The best way to get a car loan as a student is to show a reliable source of income. Before giving you a car loan, lenders will want to see that you have a reliable way of making the loan’s monthly payment. If you have a job and a history of at least a few months of income, you will increase your chances of being approved. Talk with banks or credit unions where you already have accounts
If you don’t have a reliable source of income, or your income is seasonal or erratic, you may have trouble getting a car loan from most lenders. If you have an account with a local bank or , you might reach out to it. It may offer student car loans or other programs targeted at people in your situation. You may be able to speak directly to a loan officer or manager with approval powers. The main benefit is that it may be easier to plead your case and convince someone in person. Get a co-signer
Another option is to get a trusted friend or family member to for your car loan. When you have a co-signer, the lender will also look at your co-signer’s credit history and income. The benefit of this is that your loan is much more likely to be approved. One drawback, however, is that your co-signer is also legally responsible for your car loan. If you’re not able to make the payments, that could cause friction in your relationship. Get good grades
Similar to lenders factoring credit history, some lenders use your GPA as a measure of loan approval. If you carry a strong GPA, consider sharing that with potential lenders. Because while not all will factor it, in some cases, good grades could mean more competitive rates. Where to shop for cars as a student
Much has changed about the way that people buy and sell cars over the years, but one part has remained the same — if you have the time to shop around, you can often save money. The less time you have to explore all your options, the more money you’re likely to pay for your car. Friends and family
Finding a from a friend or family member is likely going to be the perfect situation. Buying a car from someone you trust limits the chances that you will buy a lemon. Plus, depending on who you’re buying it from, they might be willing to cut you a deal on the price. While this may be the ideal situation, if nobody that you know is looking to sell a car, you will be out of luck. Local car dealers
While many experiences have gone online, there’s still some value in shopping around at local car dealers. Almost all dealers will have their inventory online as well, so you can see what cars are available before you head to the lot to take a test drive. While using the internet to help you in your car search makes a lot of sense, many people enjoy seeing and experiencing the car in person. Online
In addition to looking at the online sites of local new and used car dealers, there are a variety of other . When it comes to online buying, you can buy securely using dedicated online used car marketplaces, like or . Facebook Marketplace, Craigslist and eBay are all sites where you can look for people privately selling cars, but be on the watch for . Other costs to keep in mind
Remember that it’s not just the cost of your car loan that will affect your budget. Make sure that you have room for these other car-related expenses as well. Sales tax and registration fees. These taxes and fees vary by state and local jurisdiction, so check and see how much they will cost you. Expected cost: Between $400 and $700 depending on your state, according to . Insurance. Most states require you to have at least liability insurance. Check around with a couple of different agents and brokers to find the coverage that best suits your needs. Expected cost: Average of $1,771 based on your home state, driving history and vehicle type, according to . Parking. Especially if you’re a college student, you may have to pay for parking on or near campus. Expected cost: Average of $362 per year or $181 per semester, according to data compiled from several universities. Fuel. With gas prices rising, the cost of fuel can have a significant impact on your budget. Expected cost: Average $3.84 per gallon as of the end of August 2022, according to . Repairs and Maintenance. Unlike other forms of insurance, car insurance does not usually cover routine maintenance, like oil changes. You’ll want to make sure your budget allows money for these items. Expected cost: Average of $9,666 for new vehicles, according to . How to drive without buying
If you are having trouble qualifying for a student car loan, or if you’ve decided that it’s not the right move for you, there are other options. Leasing
When you , you get a vehicle to drive for a specified period and a certain number of miles. At the end of the term of the lease, as long as there is no damage to the car and you’re under your allotted miles, you can give the car back to the leasing company and walk away. Because you don’t own the car and only have it for a certain period, the monthly payment on a lease is usually lower than a car loan. If you want to at the end of the lease instead, you can if the option is in the original lease agreement. Renting a car
If you only need a car very sporadically, you can consider renting a car when you need one. While renting a car is more expensive on a per-day basis than a car payment, if you only need a car a few times a year, it may end up being more economical. When you’re renting a car, you also don’t need to worry about maintenance or taxes or fees. Car sharing
Another option is subscribing to a car sharing service. Turo is a peer-to-peer car rental service where you can rent cars directly from individuals. It will be similar in price and convenience to renting a car from a company. If you live in an area where they’re supported, you can also subscribe to a car sharing service like Car2Go or Zipcar. These services usually require a monthly or annual membership and then allow you to rent cars for cheaper rates by the hour or by the day. The bottom line
While it can seem challenging to get car loans for college students, it is possible. Do your homework to find a good car and explore getting a co-signer, if possible. You’ll also want to talk with various lenders to compare rates and find the best possible deal. Consider all of the extra costs that come with owning a car and decide if you can get by with alternatives like leasing, ride-sharing or public transportation. Learn more
SHARE: Dan Miller is a former contributing writer for Bankrate. Dan covered loans, home equity and debt management in his work. Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing clear, well-researched information that breaks down otherwise complex topics into manageable bites. Related Articles