4 Cost-Effective Alternatives to Pricey Car Loans for Students

student car loans

When you’re in college, having a car on campus is a big deal. Take Michigan’s Wayne State University, for example: 98 percent of their students bring a car to campus. If your school is in a small town or rural area, a car is necessary for off-campus jobs, grocery shopping, or just taking friends to the movies.

However, if you don’t already have a vehicle (or your parents’ help), you likely can’t afford to pay cash for new wheels. Instead, you’ll need to take out a loan to buy a car. As a student, that can be difficult.

While there are student car loans available, there are serious drawbacks to pursuing that kind of loan. Here’s why, and some alternatives to car loans for students.

Car loans for college students

There are many options for financing a car. The problem? As a student, you likely don’t have an extensive credit report or a large salary. If you have bad credit (or no credit at all) and only a small income, most banks or credit unions won’t work with you until your financial situation improves.

Because most conventional lenders won’t lend to student borrowers, there’s a whole cottage industry of alternative lenders who offer car loans for students. Although you can get the money you need for a new car, the terms of these loans can be outrageously expensive.

Those lenders are taking more of a risk by giving loans to students, so they compensate for that risk by charging much higher interest rates. As of August 2017, subprime borrowers — meaning those with lower credit scores and incomes — could see an annual percentage rate (APR) as high as 29.99%.

Prime borrowers — those with good credit — could get a used car loan with just 5.29% APR. That difference can cost you thousands.

Say you want to buy a used car for $10,000 and take out a 60-month loan to cover the cost. With a 29.99% rate, you’d pay back $19,408 over the length of your loan — nearly double what the car actually cost.

By contrast, if you qualified for a loan at 5.29%, you’d repay just $11,403. That $8,000 in savings could go a long way in helping you achieve your financial goals.

4 alternatives to car loans for students

Car loans for college students can end up being costly. These four options could help you avoid pricey loans or eliminate the need for your own car entirely.

1. Pursue a conventional loan

If you have a job while in school and have already established a solid credit history, you can skip the student car loans and pursue a conventional loan instead. Most banks, dealerships, or credit unions will work with you as long as you have proof of income and can show you can afford the payments.

If you apply for a conventional loan, you’ll get more competitive terms, including much lower interest rates. To sweeten the deal, some dealers offer special incentives for college students or recent graduates. However, make sure you can afford the car before taking out a loan.

If your credit score isn’t quite good enough, it might be worth waiting a few months to improve your credit score and apply for a loan after. You’ll get lower rates and save money over time.

2. Consider a co-signer

If you can cover the car payments and other vehicle costs but lenders won’t approve you for a loan, a co-signer could be the solution.

A co-signer is a relative or close friend with stable employment and good credit. With them co-signing the loan, you might be more likely to get approved.

However, only pursue a co-signer if you’re sure you can handle your expenses. Your co-signer’s name will be on your debt; if you fall behind on the payments, your co-signer’s credit will be negatively affected, and the lender could go after them for payments.

3. Save for a cheap car

As a student, it might be worthwhile to ditch the vision you have of the perfect car. While you might dream of a sleek sports car or cute coupe, they’re probably out of your budget. Instead of something flashy, consider a cheap little car that’s perfect for puttering around your college town.

You can often find an inexpensive used car with plenty of life still in it for as little as $3,000. It might not be the prettiest thing, but it’s much more likely to be within your budget. Best of all, it would help you avoid shady car loans for students.

If you need to save up, you can make money for your car fund by picking up a side hustle when your schedule permits.

4. Research car sharing

If you need to get around town, using services like Uber or Lyft can help eliminate the need for a car. Whether you need to go to the pharmacy or your friends want to check out a restaurant across town, rideshare services can provide you with convenient transportation.

Although using rideshare services can be expensive, it could be more economical than owning a car. If you purchase a vehicle, you have to cover the sale price and pay for insurance and gas. Instead, if you use Uber, you only pay a fee for the ride.

To find out if using a rideshare service makes more sense than buying a car, track your mileage for a week. Include everything from going to the grocery store, commuting to a part-time job, or hanging out with friends. Then, use the Uber or Lyft app to get a ride quote for each trip.

For example, if you commute to work five days a week and it costs $20 round trip, you would spend $400 a month on rideshare services. If you can find a cheap car, you could buy one with a much smaller monthly fee, even with the cost of insurance.

However, if you only use a car once in awhile, using a rideshare app could be more cost effective. Do the math and make sure owning a car is worth the cost — you might be surprised at what you find.

Buying a car when you’re in school

Deciding to buy a car while still in school is a huge decision. A car is likely the largest expense you’ll ever face after paying college tuition or buying a home. If you choose the wrong student car loans to finance your purchase, it could cost you thousands more in interest.

If you’ve never bought a car before, the process can be a little tricky. Here are some pointers on getting a great deal on a car.

Interested in a personal loan?

Here are the top personal loan lenders of 2018!
LenderRates (APR)Loan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Finance Lender Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)
  2. Personal Loans: Fixed rates from 5.49% APR to 14.24% APR (with AutoPay). Variable rates from 5.29% APR to 11.44% APR (with AutoPay). SoFi rate ranges are current as of December 1, 2017 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 5.29% APR assumes current 1-month LIBOR rate of 1.34% plus 4.20% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2017, the one-month LIBOR rate is 1.23%. Variable interest rates range from 6.02% – 15.97% (6.02% – 15.97% APR) and will fluctuate over the term of your loan with changes in the LIBOR rate, and will vary based on applicable terms and presence of a co-applicant. Fixed interest rates range from 5.99% – 16.24% (5.99% – 16.24% APR) based on applicable terms and presence of a co-applicant. Lowest rates shown are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with Citizens Bank at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, Citizens Bank checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Benefit: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7.39% - 29.99%$1,000 - $50,000Visit Upstart
5.29% - 14.24%1$5,000 - $100,000Visit SoFi
8.00% - 25.00%$5,000 - $35,000Visit Payoff
5.99% - 16.24%2$5,000 - $50,000Visit Citizens
5.99% - 35.89%$1,000 - $40,000Visit LendingClub
5.25% - 14.24%$2,000 - $50,000Visit Earnest
Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print, understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.