Student Car Loan Programs: A Comprehensive Guide

For many students, a car is more than just a means of transportation; it's a key to independence, enabling them to commute to campus, get to work, and visit family. Understanding the ins and outs of student car loan programs is crucial for making informed decisions about financing a vehicle. This article aims to provide a comprehensive overview of student car loans, addressing the unique challenges and opportunities that students face when seeking auto financing.

Understanding the Basics of Car Loans

Car loans for students work largely the same way as car loans for anyone else. When you take out an auto loan, you sign a contract to borrow a fixed amount of money from a lender and repay them, with added interest, in monthly payments throughout the term of the loan.

Principal: The amount of money you borrow to purchase the vehicle.
Interest: The rate charged on the principal amount you borrow, set by your lender.
Fees and taxes: Any fees and taxes associated with the sale, such as dealer’s administrative fees, registration fees, and sales taxes. You may have the option to tack these onto your financing or pay them upfront.
APR (Annual Percentage Rate): This represents the total cost of borrowing, including certain fees, expressed as an annual rate.
Insurance: Although insurance is technically separate from your monthly car loan payments, your loan may impact your insurance cost. It additionally is worth remembering that car loans for students are secured loans that use your car as collateral, so before signing on the dotted line, you may want to be sure your monthly payment fits into your budget.

Can Students Get Car Loans?

Yes, students can get car loans, and some financial institutions have special student auto loan programs. However, students may be more heavily scrutinized than a typical borrower. Several factors can influence a student's ability to secure a car loan, including credit history, income, and the presence of a cosigner.

Challenges Faced by Students

While there may be car loans out there that are geared toward college students, you could face some hurdles since auto loan lenders typically look at credit score and income as primary factors in their decision. If you’re trying to get a car loan as a student, you may not have had time to build up your credit or have much employment history as you focus on your studies.

Limited Credit History: As an international student, you may not have any credit history or social security number. Establishing a healthy credit score isn’t something you can do at the snap of your fingers - it can take some time, especially as a young adult.
Low Income: As a student, you may have a part-time or full-time job, or be focusing solely on your studies. Either way, you might find yourself with minimal income - which could be an issue since it’s a factor that lenders use to determine your financing eligibility. When looking at car loans for students with low income, current employment and employment history are both usually considered.

Strategies to Improve Loan Approval Chances

Although there can be some unique challenges to getting a car loan as a student, it’s certainly not impossible. Luckily, there are actions you can take to improve your chances of approval or to reduce your monthly payment.

Check Your Credit Score: If your credit score isn't in great shape, you may want to work on building it up. In the FICO® scoring system, credit scores range from 300-850. As your credit score increases, so do your chances of getting loan approval and more favorable interest rates, according to Experian. Paying your bills on time is a great way to improve your credit score. Becoming an authorized user on another person's credit card (who has good credit) can help boost your credit score. When the credit bureaus report on their use of the card, it's also attributed to your credit score if the credit card issuer reports for authorized users.
Secure Stable Income: Having a steady job or a consistent source of income that will cover your monthly payments may demonstrate your ability to manage paying off the loan.
Save for a Down Payment: The larger the down payment, the less money you'll need to borrow, which lowers your risk to the lender. Between 10-20% of the purchase price is the range of what you might offer as a down payment on a car loan, according to Capital One.
Choose a Vehicle You Can Afford: Consider choosing a budget-friendly vehicle rather than a high-end model. The payments will be lower, and you're more likely to be approved for a smaller loan. Since your principal amount is included in your auto loan calculation, finding a less expensive car and lowering the amount you’re borrowing may improve your approval ability and lower monthly payments. Consider ways to find an affordable car, or look into buying a used car vs. new.
Shop Around for the Best Interest Rates: Check different lenders that offer auto loans for students. Look at banks, credit unions, and online lenders to find the best interest rates and terms for you. It may benefit you to shop around and see if any lenders offer discounts or incentives to current or recently graduated students.
Get a Cosigner: One of the best ways to get approved for student auto loans is to have a cosigner. A cosigner can be a parent, relative, or another adult with established good credit who agrees to apply for the loan with you. Be aware that if you can't repay the loan, your cosigner is also responsible for the balance, and any delinquent loan payments could negatively affect both your credit scores.
Consider Manufacturer Rebates and Incentives: Yes, some manufacturers offer rebates or flexible lease or financing terms to recent or soon-to-be college graduates. And some lenders offer more favorable financing or discounts on monthly payments if a student has a high enough grade point average.

First-Time Auto Buyer Programs

This first-time program helps you realize your dream of vehicle ownership, with little or no credit history. UCU's First-Time Auto Buyer Program offers a loan that helps finance your vehicle and builds your credit history. Interested in buying a vehicle but have limited or no credit history? We can greenlight your first purchase with our First-Time Auto Buyer Program.

Benefits of UCU's First-Time Auto Buyer Program:

Competitive rates and manageable terms
A great way to establish your credit history
Ideal for limited or no credit history
Apply quickly and conveniently using our online process
Get help with your car search and selection

Leasing vs. Buying

Leasing a car generally offers warranty coverage, lower upfront costs, and lower monthly payments than a car loan. However, leases typically come with mileage limits and fees for wear and tear, and your payments won't go toward owning the car. If you don't drive frequently or for long distances, a lease may be the better option. Buying a new car as a student may have its own advantages compared to leasing, including long-term ownership and cost savings over time. Buying also allows you to sell or trade in the car if needed.

Additional Considerations

Loan Terms: Take advantage of flexible terms - long, short, or somewhere in the middle. Consider both the monthly cost and the length of your loan when deciding which car loan is the best for you. Flexible terms up to 84 months are available.
Pre-Approval: Ask your banker how applying for pre-approval on an auto loan can simplify your search before you visit the dealership. Applying before you talk to the dealer. Knowing your loan amount and monthly payment ahead of time makes your negotiation easier. That's called a preapproval, and it allows you to know exactly how much car you're preapproved for before you shop.
Fees and Discounts: While some dealerships may have intriguing financing offers, they often come with additional dealership and loan fees. Financing through Commerce Bank is a straightforward process with no fees at closing or early payoff fees. Additionally, you may qualify for an even lower payment through our vehicle loan discounts. An additional .25% rate discount is applied when payments are automatically deducted from a Community Financial checking account.
Out-of-State Financing: Out-of-state financing is available only at select dealerships and on certain types of transactions. If you are purchasing a vehicle from a private party, all necessary DMV documentation including a smog certificate dated within the last 90 days, may be required.
Payment Options: Payments begin 90 days after loan funding; interest accrues from day of funding.

Finding the Right Lender

Credit Unions: Credit union auto loans built for you, we can help make your dealer negotiations about the car… not the payments. Local, fast and friendly service from a credit union that puts you first.
Online Lenders: Apply quickly and conveniently using our online process.
Banks: Financing through Commerce Bank is a straightforward process with no fees at closing or early payoff fees.

Navigating the Application Process

Once you're ready to apply for your loan, do it online quickly. At University Credit Union, you can complete almost all of our loan applications online in just a few simple steps. After signing in to your account via the mobile app or online banking, you can apply for your auto loan in just a few minutes. There's no fee to apply, and most decisions are instant. After a review of your application, you will be contacted with the loan decision.

Refinancing Your Auto Loan

Yes, you can apply to refinance your existing auto loan if the loan is currently with another lender. Refinance and consolidate your private and federal student loans (including PLUS loans) into one manageable loan, setting up one convenient payment and potentially lowering your rate.

Important Disclosures

Advertised “as low as” annual percentage rates (APR) assume excellent borrower credit history. Your actual APR may differ and will be based upon several factors, including credit history, loan type, model year, mileage, term, and loan amount. Rates subject to change.

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