How Does a Student Car Loan Work?

Student Credit and Interest Rates

Finding a car loan as a student may not be as easy or feature as low of an interest rate as finding a car loan as an adult, but this doesn't mean that student car loans are impossible to find. Many lenders are more than willing to offer loans to students who are able to provide proof of employment since they will most likely be able to get the money to repay the loan from parents or student loans should they fall behind. Because most students are just beginning to establish both their credit and their driving records, however, the majority of student car loans will feature a higher interest rate than similar loans for individuals over 25 years of age.

Collateral, Down Payments and Co-Signers

Because the vehicle being purchased with a student car loan is a high-value item, no additional collateral is needed to secure the loan. The majority of student car loans do require that at least a portion of the purchase price of the vehicle be covered by the borrower, however. This amount is often either 10 percent of the vehicle's value or $1,000-$1,500 (whichever is greater). Having a parent or other adult over the age of 25 co-sign on the loan can reduce both interest rates and down payment requirements, since the co-signer will also bear responsibility for the loan and will be able to use her established credit history to help negotiate a better deal on the vehicle loan. Some lenders may require a co-signer for student car loans, but many are willing to offer loans to just the student provided they are able to afford the down payment and interest.

Loan Repayment

The standard repayment term for student car loans is 5 years, though the exact amount of time allowed for repayment will depend both on the specific lender and the amount of money that is being borrowed. Most lenders are willing to refinance student car loans after 2 or 3 years, allowing the student to get a lower interest rate and an extension on their repayment term provided that they have been making their loan payments on time.