Having a car can make student life a lot more convenient — and expensive. If you can’t save up money to buy a car outright and can’t ask your parents for help, consider getting a car loan. But finding a loan with low interest rates can be tough if you have little or no credit. Find out your student car loan options in the guide below.
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What types of car loans are available to students?
There are two main types of car loans to choose from:
Secured car loan. Secured car loans usually have lower interest rates because your car is used as collateral. If you default on the loan, the lender has the right to repossess the vehicle. Check that your car is eligible before applying as some lenders place restrictions on a car’s age and condition.
Unsecured personal loan. If you want to purchase an older car or get a loan that covers more than just the cost of the car, consider an unsecured personal loan. You’ll likely need a strong credit history for an unsecured personal loan because they’re more of a risk for lenders. Interest rates may be higher, but if you default on the loan, at least you’ll still have your car.
Compare car loan options for students
How to find a competitive deal on a student car loan
When comparing student car loans, consider:
Interest rate. Get the most competitive interest rate by applying to a number of different loan providers. Make sure these lenders only do a soft pull, not a hard pull, on your credit in order to give you their initial quotes. Too many hard pulls on your credit will damage your credit score.
Fixed or variable rate. With fixed rates, your repayments stay the same for the entire loan term, but fixed-rate loans tend to come with more restrictions on early repayment. Variable rates change throughout the life of the loan, but you usually get more early repayment flexibility.
Fees. Take a look at the upfront and ongoing fees for the loan to get an idea of how much it will cost.
Repayment flexibility. Are you able to choose how often you make payments? Can you make additional payments without penalty? Can you repay the loan early without penalty? These are things to look out for.
Features. Does the loan offer any additional features? Some of these may include pre-approval, online account management, a car-buying service to help you find your car or discounts on other products and services.
7 steps to getting a car loan as a student
Finding a car loan is pretty straightforward. Here’s how it works:
Consider getting pre-approved. Before deciding which car you want to buy, see how much you can borrow by applying for pre-approved loan. This can give you more bargaining power at the dealership or a car auction.
Find a car. For private sales, look on car sales sites and the newspaper, or head to a dealership. Find a car that’s within your budget and in good condition.
Compare your loan options. Start comparing your loan options once you’ve found the car you want or have an idea of what you’re looking for. Consider the interest rate, fees and features of the loan to find one that’s right for you.
Check the eligibility criteria. Even if the loan sounds right, you may not meet its eligibility criteria. Lenders usually require you to be at least 18 year old, a Canadian citizen or a permanent resident, earn a regular income and be employed. Your car will also have to meet eligibility criteria. If you’re under 18 years old, an adult such as a parent can help you get a loan instead.
Get your documents in order. Gather all the required documents, which usually include a valid form of government-issued ID, pay stubs and information regarding your employment and finances (income, expenses and debts). Once you choose your car, submit the make, model, year, VIN number, registration number and purchase price to the lender.
Submit your application. Depending on the lender, you may receive an instant response. Other lenders may take a few days to review your application and fund your loan.
Buy your car. This can happen in a few ways. The lender may pay the dealer or private seller on your behalf or you’ll get funds to pay the seller directly.
Car loans for international students
Finding a car loan as an international student can be particularly tough: you likely can’t meet most lenders’ requirements for documentation, credit and/or permanent residency. Luckily there are a few lenders out there like Go Auto that specialize in financing for students in your situation.
You will need to get a Social Insurance Number (SIN) in order to fill out a loan application, which is fairly easy to do. To get a SIN, go to a Service Canada Office with personal identification and one of the following documents:
A study permit stating that you “may accept employment” or “may work” in Canada, OR
A study permit and a “confirmation to work off campus” letter issued by Immigration, Refugees and Citizenship Canada (IRCC) prior to February 6, 2015 OR
A work permit (such as a co-op, post-graduation, or spouse/partner work permit)
Your SIN will be issued the same day.
Plan on making a sizeable down payment (50% or more of the car’s purchase price). You might also want to look into getting a personal loan — often these don’t require a Canadian cosigner and can be used to buy a car. And if you do get a car, make sure you get insurance you can qualify for as an international student.
8 helpful tips for applying
If you’re a student you may be working part time, be on a lower income or have a limited credit history. This can make it difficult to get a car loan. Use the guide below to find out how to get approved for a car loan.
Your credit history is important in order to be approved for a car loan you can afford. If you’re in college, you may have a short credit history — or none at all. A couple of ways to build your credit history are:
Pay your existing bills on time, including your phone and utility bills.
Order a copy of your credit file — you can receive it free once a year from the 2 major credit bureaus, Equifax and TransUnion.
Don’t open and close credit accounts frequently; let your accounts mature.
Keep you credit utilization ratio under 30%. For example, if your credit limit is $1,000, keep your balance below $300 — 30% of your limit.
Lenders want to see that you have a steady stream of income to show that you’ll have the means to pay back the car loan without missing any payments. Income requirements for lenders vary, so it’s smart to ask what counts as an eligible income before applying.
In most cases, you’ll need to be 18 years or older and be a Canadian citizen or permanent resident. If it’s a used car, it may need to meet certain requirements. For example, lenders have guidelines about how old the car is allowed to be and how much mileage it can have to be allowed for financing.
A larger down payment shows that you have control of your finances — and can reduce your monthly payments and overall loan amount.
A cosigner — a parent or other adult that trusts you — can sign on to your loan with their income, getting you a better interest rate. Your cosigner agrees to take on the legal and financial responsibility for your debt if you’re unable to make payments. Make every effort to make your payments so you don’t jeopardize you or your cosigner’s credit.
If you’ve had a loan for a year or two and have been making steady payments and growing your credit score, you’ll likely benefit from lower interest rates and loan terms by refinancing your loan.
College is expensive, with classes, books and other living expenses. When you’re taking on a car loan it’s important to factor in every cost that comes with it. Make sure you’ll be able to afford car insurance, gas and maintenance along with your other personal expenses.
A lender may try to win your business if they know you have other options. Ask about lowering the interest rate as well as getting flexible loan terms including early repayment without penalty. Any waived fees or discounts you can get equals money saved.
Ready to choose the perfect car?
Since this is probably your first car purchase, you may want to stick to an economical car. Here are some tips that can help you narrow down what you need:
Attempt to negotiate; you don’t have to accept purchase terms exactly as they come
Ensure the vehicle you want meets your lender’s loan requirements
Buy the first car you see
Accept for the first loan offer you receive
Apply for every loan available — narrow down your choices to three
You might have trouble getting a car loan on your own while you’re still in college. But it’s not totally impossible. By working with a lender that accepts students or allows you to apply with a cosigner, you could be on the road with a new set of wheels in no time.
Yes. Some lenders actually offer discounts to students with a high GPA.
You could. Car loans tend to have lower interest rates than student loans and depend on your creditworthiness. However, some lenders may have restrictions on how you can use your funds.
If you own a vehicle, you may have to report it as an asset on government funding applications, if the vehicle’s value is over a certain amount (which can vary by province). Before you buy a car, check with your student loan institution to see how this purchase might affect your eligibility for future funding.
It will be tough, as lenders like to see a healthy credit history on a borrower’s credit profile. However, there are some options for getting a loan even if you have bad credit. You can also take steps to improve your credit score, which would make it much less of a hassle to get financing down the road.
Matt Corke is Finder's head of publishing for rest of world and New Zealand. He previously worked as the publisher for credit cards, home loans, personal loans and credit scores. Matt built his first website in 1999 and has been building computers since he was in his early teens. In that time, he has survived the dot-com crash and countless Google algorithm updates.
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