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A student’s guide to car buying

Person in driver's seat of car looking over their shoulder while fastening seatbelt
Klaus Vedfelt/Getty Images
Person in driver's seat of car looking over their shoulder while fastening seatbelt
Klaus Vedfelt/Getty Images
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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 do 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 or can get a trusted friend or family member to co-sign for you.

Ways to finance your car

If you’re a student or someone else with a limited credit history, you do have options for financing your car. While you may not have as many options as someone with a long-established job and credit history, it is possible.

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 that are targeted for people in your situation.

You may be able to speak directly to a loan officer or manager with approval powers. The benefit of that is that it may be easier to plead your case and convince someone in person. One drawback is that, if approved, you may be charged a higher interest rate than borrowers with a more reliable income.

Get a co-signer

Another option is to get a trusted friend or family member 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 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.

Where to shop for cars

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. That lets you know what to expect before you show up to test-drive in person. 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 online options for buying a car. Facebook Marketplace, Craigslist and eBay are all sites where you can look for people selling cars.

Buying a car online from someone you don’t know does come with some risk, so watch out for scams. Carvana, CarMax and Vroom are online-only sites where you can buy and finance a car.

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 in your budget 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.
  • 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.
  • Parking. Especially if you’re a college student, you may have to pay for parking on or near campus.
  • Fuel. With gas prices rising, the cost of fuel can have a significant impact on your budget.
  • 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.

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 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 term of the lease instead, you can.

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 and 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.

 

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Written by
Dan Miller
Points and Miles Expert Contributor
Dan Miller is a former contributing writer for Bankrate. Dan covered loans, home equity and debt management in his work.
Edited by
Auto loans editor