How to Get a Student Car Loan

How to Get a Student Car Loan

Filed under Information Centre

Are you in college and in need of a car to drive to school or to an off-campus job or internship? Start your journey to independence with a student car loan.

Even when you’re young and may not have a credit history yet, you can get approved for car financing as a student. Nowadays, there are plenty of fintechs and online lenders that provide easier access to financing, especially for those who have poor or insufficient credit background and do not qualify for traditional loans.

Getting a car loan not only let you drive your own wheels but also helps you build your credit profile to easily secure financing in the future.

How a Student Car Loan Works

A student auto loan works just like other types of car financing that lets you borrow money to purchase a new or used vehicle. Generally, however, the amount you can borrow is capped at around $15,000 to $20,000. It ensures that you don’t borrow more than necessary while also decreasing the default risk for lenders. However, it also limits the type of car that you can buy.

Loan Terms and Repayment

You repay the amount you borrowed plus the interest over a set period, which ranges from 1 to 10 years depending on the lender and agreement you reach with them. Repayment for student auto loans, however, usually run from one to seven years.

The interest rate for the car loan can be fixed (doesn’t change throughout the loan’s entire term) or variable (fluctuates according to the changing market lending rate). A secured car loan has a lower interest rate, which usually ranges from 6% to 10%, that an unsecured car loan that generally commands a rate of 8.5% to 17%.

Aside from paying the loan principal amount and interest rate, you will also pay other fees and charges associated with your loan. These include:

  1. application fee or upfront fee
  2. monthly or annual maintenance fee
  3. prepayment penalty (some lenders charge if you pay off your entire loan earlier than the agreed term)


The car that you purchased is usually pledged as collateral for your loan. This means that if you cannot complete the loan repayment within its agreed term, your car will be repossessed and sold by the lender to recoup the money they lent.

While rare, you can also get an unsecured car loan, which doesn’t require your vehicle to be pledged as collateral. However, this setup usually charges a very high interest rate, considering that you have little or no credit history, to begin with.


You are eligible for a car loan as long as you’re of legal age (18 years old and above) and a natural-born Australian or a permanent resident of the country. If you are an international student living in Australia, you may still qualify if you have a valid work visa (457 or other diplomatic visas). Other lenders also accept acceptable visa along with confirmed employment in the country.

Student Car Loan

How to Get Approved for a Student Car Loan

Despite being eligible for a car loan, lenders may still reject your application simply on the basis of insufficient credit history and low credit score. However, there are ways to improve your chances of approval, including:

Getting a Cosigner

A cosigner is a person who vouches for your ability to pay the car loan on time by signing the contract along with you. Doing so makes them legally responsible for the loan agreement like you. If you default on the loan repayment, your co-signer has to make the repayment. Otherwise, both of you can face legal charges.

Ideally, your cosigner must have a stellar credit rating and stable source of income to get the lender’s nod. Their good credit standing also helps you get a better interest rate and favourable terms. However, if you fall short on your repayments and the lender has to repossess the car, your co-signer’s credit score will be negatively affected.

Because of this consequence, finding a cosigner is not easy-peasy. If you have a close family member or a trusted friend with a good credit score and willing to become a co-signer for your car loan, consider yourself lucky.

Offering a Large Down Payment

You need to provide a down payment for your car loan, regardless if it’s secured or unsecured. This payment is put towards the purchase price of your car and lowers your interest rate and your total loan amount.

While borrowers with good credit scores can put a 10% down payment on a car loan, a student like you may be required to provide a bigger down payment because of your insufficient credit history. Ideally, this is around 20% of your car’s total price. A substantial down payment tells the lender that you’re committed to the car. In return, they will consider you a low-risk borrower and may even offer better terms for you.

If you can provide a bigger down payment than 20%, do so. This will help you get better terms and protects you from getting upside down on your car loan. Remember that a new car depreciates around 20% in the first year plus more depreciation for each subsequent year. If you pay a small down payment for your car loan, you may soon find yourself paying more than what your car is worth.

Do you have enough cash for a down payment?

You may need to wait for a few months to raise enough money for it. Saving money takes discipline. If you’re raising money from your allowance or off-campus job, sacrifices have to be made. You may need to stop buying the latest gadgets and trendy outfits or hanging out at the bar to raise enough cash to pay for your car loan’s down payment.

Comparing Student Car Loans

There are many financing institutions that offer car loans—from banks and credit unions to fintechs and online lenders. Banks and credit unions typically don’t approve borrowers with low credit scores, including students, unless you have a cosigner with strong borrowing power. To get the best rate and terms, it is important to shop around for the best deal. If you qualify, check which one offers the best student car loan program.

Generally, a credit union provides lower interest rates on car loans than a bank. Fintech and online lenders work on a massive scale and can approve your application with fewer requirements, although there is no guarantee.

The best student car loan lender for other people may not be ideal for you. Check around to see which one has the best offer for your unique situation.

Here’s a list of what you need to compare:

  • Interest rate. The lower the rate, the less interest you will pay.
  • Additional fees or charges. These fees affect the total cost of your loan.
  • Loan term flexibility. Typically, loan repayments are on a monthly basis but some lenders also provide weekly or fortnightly options. You can also choose to pay your regular dues in advance or pay your entire loan early without penalty.
  • Additional features. Some lenders offer complimentary services that affect your entire car loan application experience, including pre-approval, vehicle sourcing, online account management and redraw facility for additional repayments.

How a Student Car Loan Builds Your Credit Score

Getting a car loan at a young age helps build your credit score if you make your monthly repayments on time and complete your loan within its agreed period. All your repayment activities are reported to the credit bureaus.

Just make sure to get a car loan from a licensed lender. Licensed lending agencies follow the established guidelines and government regulations to ensure the security of the borrower. These guidelines include providing accurate and factual reports of your payment activities to the credit bureaus.

The better your profile, the higher your credit score. This translates into high creditworthiness that allows you to easily secure various financing in the future.

Positive Lending Solutions has access to over 30 of Australia’s best banks and lenders, including the largest, oldest and those that are not available to the general public. Through our wide network of financing partners, we can help find the right car loan for you. Call us on 1300 722 210 or request a Quick Quote.

See also:

Do I Need a Down Payment for a Car Loan?

Car Buyer’s Guide to Vehicle Body Types

Getting a Car Loan With a Balloon Payment? Here’s What You Should Know

Student Car Loan

Quick Quote

By clicking Get My Quote, I acknowledge and accept the Terms & Conditions.

Did you enjoy this article?

We can deliver articles like this one straight to your inbox. Simply enter your email address in the box below and we'll take care of bringing you the best content.

Email Sent!

Please enter a valid email.

We make finance a Positive experience