Key takeaways

  • Following a tight budget is the key to purchasing a vehicle that you can truly afford ownership of.
  • If you lack credit history, adding a co-signer with long-standing and strong credit can help you secure better rates.
  • Consider costs outside of the vehicle alone such as parking, maintenance and insurance when vehicle shopping.

If you’re a student looking to buy a car, you may have found it a bit more challenging than you expected. While car loans for students exist, many lenders are wary of lending money to first-time car buyers or those with limited credit history. Still, student car loans are possible — especially if you have a reliable source of income, good grades or can get a trusted friend or family member to co-sign for you.

How to buy a car as a college student

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, finding a good deal matters. This is even more true as costs are record high, with average monthly payments for used cars at $516 and new cars even steeper at $725 in the first quarter of 2023, according to Experian. Follow these steps when you start your car buying process.

  1. Figure out a realistic budget. Take advantage of a car payment calculator to determine how much you can afford to spend each month. When you are budgeting, be sure to focus on the out-the-door price of the vehicle and not just the sticker price.
  2. Save for a down payment. While saving for a down payment 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.
  3. 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.
  4. Lock in financing. It is smart to apply for loan prequalification 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 the necessary documentation to confirm the information you provide.
  5. Negotiate. Negotiation can be very intimidating, especially for a young person. When 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 credit union, 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 that boasts high credit, income or longer employment history to co-sign 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 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 considering credit history, a rare few lenders say they’ll use your GPA as a measure of creditworthiness. 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 used car 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.


In addition to looking at the online sites of local new and used car dealers, there are a variety of other online options for buying a car. When it comes to online buying, you can buy securely using dedicated online used car marketplaces, like Carvana. Many times these types of online lenders do not advertise a minimum credit score for in-house financing, making them an especially good option for students.

Facebook Marketplace, Craigslist and eBay are all sites where you can look for people privately selling cars, but be on the watch for scams.

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.

  • Purchase 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: An average of $675 per year, depending on your state, according to AAA.
  • 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 $2,014 based on your home state, driving history and vehicle type, according to 2023 data.
  • Parking. Especially if you’re a college student, you may have to pay for parking on or near campus. Expected cost: Average of $183 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 $3.83 per gallon as of early August 2023, according to AAA.
  • 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 9.68¢ per mile for new vehicles, according to 2022 data.

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.


When you lease a car, 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 buy the car 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.