Can You Use Student Loans to Buy a Car?

Buying a car with student loans

Student loans are exclusively reserved for covering the cost of attendance at a college or university, so they should not be used to purchase a vehicle. Even if you live off campus and need a vehicle to get to class, you likely cannot use a student loan to buy one.

Federal student loans can absolutely not be used for anything outside of education expenses, but some private student loans can be used for other purchases, such as a vehicle.

However, even if you have a private student loan, it is not advisable to use it to buy a car. This is because you won’t start paying off the loan until after you graduate, and you’ll likely be paying it off for at least 10 years. This is a much longer term than auto loans, and could mean you will still be paying off the loan even after buying your next vehicle. Plus, the total interest you end up paying can be more than the car’s sale price.

If you need to purchase a vehicle but cannot afford it outright, you should get approved for an auto loan. But car loans may be difficult to get as a student due to their limited credit history, limited income, and potentially already having large outstanding debt in the form of student loans. That is why it is important to shop around for the best deal.

Car loans for college students

There are a few ways you can get your car loan, depending on your situation and where you plan to purchase your vehicle:

• Credit unions, which typically over lower interest rates and fees than banks do. They may also be more likely to work with students who have lower credit scores.
• Banks, which are great for borrowers with excellent credit scores.
• Online lenders, which typically offer lower interest rates and have the benefit of everything being digital, but don’t offer in-person support if you have questions.
• Dealerships, which may offer lower interest rates to those with excellent credit, but also charge fees.

Taking out a secured car loan may be right for you if you need to purchase a vehicle and don’t have the funds to do so up front, but there are a number of factors to keep in mind when searching for the right loan.

Since most students don’t have a verifiable income and may not have enough of a credit history to qualify for traditional auto loans, they may want to consider looking for student car loan programs. These programs may consider your GPA or other factors over your credit score, and also may offer discounts, rebates, and other benefits designed specifically for students.

Another option to help ensure you qualify is to have a cosigner. This person, typically a parent or other responsible and trusted adult, is pledging to pay back the loan if you do not.

Tips for finding the right auto loan

Shopping around to find the best loan for you can help you better understand how much you’ll be able to borrow, interest rates you qualify for, and terms of the loan (or how long you will have to pay it back). A few specifics to keep in mind include:

• The total amount you’ll need. When searching for a loan, you should have a general idea of a budget for your new vehicle. You also need to know how much you can put as a down payment, which is money you pay up front toward the purchase. This can help you know how you will need to borrow.
• Monthly payments. Know how much you’ll be able to put toward monthly payments. Some loans may have a minimum monthly payment, so make sure this fits into your budget.
• Loan term. This is the length of the loan, or how long you will have to pay it off.
• Interest rates. Your loan will accumulate interest over time, and the higher your interest rate, the more you’ll have to pay back over the life of the loan. You can get better interest rates with a high credit score, but be sure to shop around for the lowest interest rate possible.

How to improve your chances of qualifying for an auto loan

Knowing that lenders will look at your credit score, credit history, income, and debt-to-income ratio to determine whether or not to approve an auto loan application, there are a few things you can do to improve your chances of qualifying.

• Improve your credit score. If you have a credit card, you should use it responsibly to pay for things you need. Be sure to pay it off in full and on time each month. You may want to consider starting to make payments on your student loans. Avoid applying for additional credit.
• Maintain a good GPA. Some lenders will consider a high GPA instead of looking at your credit score. Maintaining an excellent GPA can increase your chances of approval.
• Get a source of income. If you don’t already, you may want to get a job that provides a steady source of income. As a student, you may only be able to work part-time or at a job that pays minimum wage, but some income is better than none in this case. Plus, if you’re able to save up some funds to put toward a down payment, you won’t have to take out as large of a loan.
• Get a cosigner. If you have someone who can cosign your loan, this may help improve your chances of qualifying.

Commonly asked questions

Is it legal to buy a car with student loans?

Education loans have terms and conditions that outline what the loan can be used for. In nearly all cases, you must only use the loan for educational purposes, such as tuition, on-campus housing, or other college/university fees. You would not be able to purchase a car using a student loan, and could face massive penalties and even lose the funding if you use it for unauthorized purchases.

Is a student loan an affordable car financing option?

Because you cannot use a student loan to purchase a vehicle, it is not an affordable financing option. However, some credit unions and other lenders offer auto loans made for students, with more preferable interest rates and eligibility criteria. Shopping around for the best term and interest rates can also help ensure you find the most affordable option.