Getting a car loan as a student can be daunting, especially with minimal income and a limited credit history. However, owning a car can provide the flexibility needed to juggle school, work, and a social life. While auto loans may be tricky to get for students, there are options available.
Here’s our guide on getting a car loan as a student.
Key Points
- Getting a car loan can be more challenging if you have a limited credit history and a lower income, though options are available.
- Some lenders have car loan programs designed for students who may need a little assistance qualifying for financing.
- If time is on your side, it’s best to build a good credit score to improve your chances of car loan approval as a student.
- Alternatively, consider taking out a personal loan from an alternative lender to get the funds needed for a car loan.
Car Loans For Students: Can You Get One?
As a student, you might be wondering, “Can I get a car loan?” The short answer is yes, but you will need to have good credit and a steady income. Without these two things, getting approved can be challenging, especially by a traditional lender. However, some banks have programs specifically for students to help them secure a loan for a car purchase.
Alternatively, some lenders work with those with limited credit history to help them get the loan they need to finance a vehicle purchase.
Best Car Loans In Canada
Where Can You Get A Car Loan As A Student?
Students have several options for getting a car loan. Many banks and credit unions offer special programs designed for students. Online lenders also provide loans to students, often with flexible terms and loan criteria that make these loans easier to qualify for.
Special Programs With Banks
Some banks offer special programs designed specifically with students in mind to help them get the financing needed to buy a car. For instance, Scotiabank’s Grad Auto Loans program allows students who have recently graduated or are about to graduate to finance 100% of their vehicle purchase and skip loan payments for up to 90 days.
Key features of Scotiabank’s car loan program for grads are as follows:
- No loan payments for up to 90 days before you start a full-time job
- No down payment required
- Buy a new or a used vehicle that’s up to 3 years old
- Cash back offers
- 0% financing available to eligible borrowers
- Financing at over 4,000 dealerships
Online Car Loan Lenders
Many online lenders are available in Canada that can help students find the right financing solution for a vehicle purchase. As long as you meet minimum income requirements, you may still qualify for a car loan from an online lender.
These types of lenders tend to have less strict loan criteria compared to traditional lenders, so students with a lower income and credit profiles may still be able to qualify.
How Do Car Loans For Students Work
When you obtain a car loan, you are extended the amount of money you need to purchase the car you want. Once the purchase is finalized, you start making payments toward the loan, which include both principal and interest payments. These payments are made over a set loan term until the loan is fully paid off.
Car loans are also a secured form of financing. In other words, your car is used as collateral for the loan.
Can You Use A Student Line Of Credit To Buy A Car?
A student line of credit can be used for all sorts of expenses, including a vehicle purchase. These flexible solutions allow students to access as much or as little money as needed, up to a specific credit limit. You can use the funds to cover various student-related expenses, including transportation.
While government student loans are available for students, they’re generally stricter on what you can use them for. A student line of credit from a bank provides more flexibility. Benefits of a student line of credit include the following:
- Lower Rates: A student line of credit can come with lower rates while you’re still in school.
- Quick Access To Cash: Once approved, you’ll have immediate and ongoing access to cash as needed.
- No Principal Repayment: During the draw period, you’ll only need to make interest payments (if applicable), without making principal repayments.
- Flexible Repayment: Only pay interest on the amount you borrow.
Bank Student Lines of Credit
Canada’s big banks typically offer lines of credit to students to help them cover a variety of costs, like car payments, with flexible borrowing and repayment terms:
| Bank | Line Of Credit Features |
| Scotiabank’s ScotiaLine® Personal Line of Credit for Students | – Interest-only payments of Scotiabank prime + 0.50% while in school – 12-month interest-only repayment grace period after graduation – Up to $80,000 total maximum credit limit (up to $160,000 for graduate students) |
| TD Student Line Of Credit | – No principal payments until 24 months after you graduate – Up to $80,000 maximum total credit limit – higher limits available for graduate, professional, medical, dental and veterinary students. – Interest-only payments while in school: – Undergraduate – Honors Business Administration (University of Western Ontario): TD Prime Rate – Undergraduate: TD Prime Rate + 1.00% – Post-Secondary Certificate Program: TD Prime Rate + 1.50% |
| RBC Student Line of Credit | – Credit limits starting at $5,000 (medical and dental students may qualify for up to $350,000 in total) – Only pay interest on what you borrow, rates based on RBC Prime Rate. – Optional Loan Protector® Insurance |
| CIBC Professional Edge® Student Program | – Up to $20,000 per year – Up to a maximum of $80,000 total (medical and dental students may qualify for – Up to $350,000 in total) – Variable rate based on CIBC Prime Rate |
| BMO Student Line of Credit | – Up to $20,000 per year – Up to a maximum of $80,000 in four years – Interest rate based on BMO Prime Rate |
Reasons Your Loan May Be Rejected As A Student
If you’ve applied for a car loan as a student but were turned down, there may be a few reasons for this:
- Insufficient Income: You’ll need to earn a certain income to cover your loan repayments. If your income is inadequate, your lender may reject your loan application.
- You Have A Low Credit Score Or No Credit History: Credit scores are key to loan approval. As a student, it can be difficult to build a good credit score in such a short time. This can be a deterrent when applying for a car loan.
- You’re Too Young: You need to be the age of majority in your province to get approved for a car loan. If you’re a student under 18 or 19 years of age, you’ll likely be turned down for a loan.
- Unstable Employment History: A stable and reliable job is a typical loan requirement. If you’ve jumped around from job to job, your lender may feel uneasy about lending to you. Generally speaking, lenders prefer to see loan applicants who have been employed for at least 3 to 6 months with their present employer.
How To Apply For Car Loans As A Student?
To find, apply for, and get approved for a car loan for students, follow these steps:
Step 1. Find Out How Much You Can Afford
Start by creating a budget for your car by adding up all your expenses, such as your books, school supplies, and meals. If you’re an international or out-of-province student, you may also have housing costs to consider.
A budget will tell you how much money you have left over each month after all your current debt obligations have been covered. Then, you’ll know how much you have to commit to making car loan payments. Ideally, you should aim to spend no more than 10% to 15% of your income on car loan payments.
Step 2. Find Out Your Credit Score
Understanding your credit score will give you an idea of the strength of your car loan application. A higher score will increase your chances of loan approval.
You can quickly check your credit score for free using Loans Canada’s CompareHub.
However, as a student, it’s highly possible that you have a limited credit history. In this case, you may first need to build your credit score or apply with a lender who is willing to work with low- or no-credit borrowers.
Step 3. Shop Around For A Lender
Next, you’ll want to do a quick search for lenders in Canada and the car loan options they offer. You can do this using an online search platform like Loans Canada. Based on the information you provide, a list of lenders will quickly populate, along with their loan offers.
Step 4. Get Pre-Approved
Getting pre-approved for a car loan will give you a more accurate idea of what you can get approved for. More specifically, you’ll know how much of a loan you can get, so you can narrow your focus on vehicles that fit within that price range.
Step 5. Choose Your Car
Once you’ve done some research and been pre-approved by a number of lenders or dealerships, you should also have a better idea about:
- Which cars you’re eligible to finance
- How much you can afford in payments
Although the cost of your loan is important, don’t forget to consider the long-term costs of driving and maintaining your particular make and model. Only choose a car that’s in good condition and truly fits your budget.
Step 6. Apply For The Loan
Next, pick a lender or dealer and check their eligibility criteria. You can apply for a car loan as a student online or at the dealership in person.
Most will require you to be a Canadian resident and at least the age of majority in your home province or territory (18 or 19) to apply. Depending on where you apply, you’ll also usually need a reliable source of income and employment. Once you have all your documents, you can submit your application.
Step 7. Get Approved And Finance Your Car
Some lenders will respond within the same day, while others may take a few business days to review your application and give you an offer. If you go directly to a dealership, they may even approve you on the spot.
Always read your contract and loan conditions carefully before signing. Once signed, a lender may pay the lender or private seller for you or send you the funds by direct deposit or Interac e-Transfer so you can buy a car on your own.
Car Loans For Students: Documents Required
When you apply for a student car loan, you’ll need to submit a variety of personal and financial documents to the lender or dealer.
Personal Information Required For Student Car Loans
You’ll need to provide the lender with the following documents:
- Photo ID: Provide at least one or more pieces of valid government photo ID (driver’s license, passport, etc.)
- Income Information: Your most recent pay stubs and bank statements will show the lender what your finances are like to ensure you can comfortably cover your car loan payments.
- Employment Information: The lender may want proof that you’re steadily employed.
- Debt Information: Information regarding your debts will tell the lender how much of your income is tied up in existing debts.
- Down Payment Amount: How much down payment you’ll offer will determine your loan amount.
If you’re an international student, you’ll also need a Social Insurance Number (SIN) to apply for a car loan, which you can obtain by visiting a Service Canada Office.
Car Information Required For Student Car Loans
If you apply for a car loan with a lender, you’ll need to provide details about the car you’d like to finance, such as the following:
- Make, model and year
- Vehicle Identification Number (VIN)
- Registration number
- Bill of sale
Can You Get A Car Loan As An International Student?
Depending on how you’ve entered Canada, qualifying for a car loan as an international student can be hard. That’s because most lenders require you to be a Canadian citizen or permanent resident. They may also impose different documentation and credit restrictions that can make it even more challenging to get a car loan as an international student.
That said, there are select lenders that offer car loans for international students in Canada. You can find them if you do enough research and know what you’re looking for.
In fact, most of Canada’s big banks — including RBC, CIBC, TD Bank, National Bank, and Scotiabank — offer auto loans to newcomers to Canada. These loan programs come with specific loan criteria that are designed to help newcomers, including international students, get financing to buy a car.
Learn more: A Guide To Car Loans For Newcomers To Canada
Can You Use OSAP To Buy A Car?
The Ontario Student Assistance Program (OSAP) is designed to cover the cost of education-related expenses, such as tuition, textbooks, and living costs. Although there are technically no strict restrictions on how OSAP funds may be used, buying a car with OSAP money is not recommended. This is because a big expense such as a car using OSAP funds can increase your debt burden and negatively impact your future eligibility for government-backed financial aid.
If transportation is essential to attending college or university, consider alternative financing methods, such as personal loans or student lines of credit. Otherwise, budget-friendly transportation options may be available, such as public transit or carpooling.
How To Increase Your Odds Of Qualifying For Car Loans For Students
When applying for a car loan, your credit and income will be assessed by the lender. Many students are beginning their journey to financial independence. As a result, being strong in these two categories can be a challenge.
That being said, here are a few things to help you increase your odds of qualifying for car loans for students:
Add A Cosigner
A cosigner agrees to repay a loan in the event that the primary borrower defaults. Because of this, lenders are more likely to approve you with a cosigner.
While this is advantageous to you, the cosigner is incurring significant risk. Choosing the right cosigner is important. Typically, you’ll want to choose a family member.
Improve Your Credit
As mentioned, credit scores are commonly used by lenders to assess a borrower’s creditworthiness. Unfortunately, as a student, your credit history might be non-existent, as you may not have used credit in the past.
As such, it’s in your best interest to build your credit prior to applying for a car loan as a student. Thankfully, some options are available to help you build your credit as a student.
Increase Your Income
As previously mentioned, lenders will want to ensure that you have enough income to make payments. As such, securing a steady income source is a great way to better your odds of approval.
Naturally, as a student, your focus is on school, not work, as it should be. However, there are a few ways you can earn extra money and even earn income passively. Taking on a side gig that doesn’t interfere with your studies may be one way to improve your odds of getting approved for a car loan.
Increase Your Car Loan Down Payment
The more you put down on a car, the less you will need to borrow. Not only will it be easier to secure financing, but your payments will also be lower because you’re financing less.
As a benchmark, 10% to 20% is the recommended range for a down payment on a car. Furthermore, some car loan lenders require this down payment range when working with a student. Consider taking some time to save up some money before applying for a car loan.
Alternatives To Car Loans For Students
Here are some alternative financing options you can look into if you don’t want or can’t qualify for a student car loan in Canada:
Buy Used And Pay Cash
Buying a used vehicle from a private seller may be a great way to save money on a car purchase. This may be an option to consider if you have a lump sum of money available to cover the entire cost of a car. Or, consider taking some time to put a little bit of money aside every day to save up for a car purchase all in cash.
Paying cash means you won’t have to take out a car loan. This comes with several perks, such as not having to meet strict loan criteria, no interest to pay, and no additional debt to take on.
Learn more: Is Paying Cash For A Car A Good Idea?
Unsecured Personal Loans
A car loan is meant to finance a vehicle purchase. A personal loan, on the other hand, is more flexible with the funds. If you have trouble getting a traditional car loan, you may consider applying for a personal loan and then using the funds to buy the car you need.
Alternative lenders typically offer personal loans to those with low or no credit. This makes these loans easier to get approved for. However, personal loans from alternative lenders are more expensive and come with higher interest rates.
Public Transport
Since some car loans for students are pretty expensive, it might be much more affordable to take public transit whenever possible. Plus, taking the bus, train, or subway can allow you more time to study. Just make sure that your monthly pass or daily fees would fit into your budget without issue.
Ridesharing
If you only need a car occasionally, then ridesharing might meet your needs without the commitment of an expensive car loan. You can even rent a car from personal car owners through platforms like Turo whenever the need for a set of wheels is required.
Final Thoughts On Car Loans For Students
You have options if you’re a student looking to purchase a car. You might just have to work a little harder and smarter to ensure you get approved. And the great news is, once you start paying off your car loan, it will help you build your credit further, so long as you manage the debt responsibly.
