A Guide to Auto Loans While Balancing Student Loan Debt

Carrying student loans can affect your ability to get other types of credit, including car loans. If you want to get a car loan with student loans, you may want to improve your credit profile first, whether by paying down debt, improving your credit score or choosing a less expensive vehicle.

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Key takeaways

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• It’s generally not a good idea to use student loan funds to buy a car. Research auto loans if you’re ready to buy.
• Having student loans and a lower income can make it more difficult to qualify for a car loan, because it raises your debt-to-income ratio. 
• To get a car loan with student loans squeezing your budget, focus on paying down other debts and improving your credit score.
• If you’re struggling to make payments on your car loan and student loans, refinancing your auto loan may be an option to free up some cash flow. 

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Can you use student loans to pay for a car or repairs?

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College students are often managing a shoestring budget but still need reliable transportation to get to campus, work, or internship opportunities. You wouldn’t be the first student to wonder, can you use student loans for a car? 

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Even if you have excess student loan funds, you may be restricted as to what you can spend them on. Whether you can use the money to buy a car depends on what kind of loans you have and what your loan contract states.

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• Federal student loans: If you have a federal subsidized student loan or unsubsidized student loan, you can use those funds to pay for operating and maintaining a car, but you can’t use the funds to purchase a vehicle. If you do, it may be considered fraud.
• Private student loans: Loans you receive from a private lender have their own rules on what you can use the money for. Usually, you’ll still need to spend the money on educational costs. Check your loan contract or ask your lender if buying a car is an allowed use of the funds. Just keep in mind that it’s usually more expensive to buy a car this way than using a regular car loan.

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Can you be denied a car loan because of student loans?

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It’s possible you could be denied a car loan because of student loans, but it depends on your personal circumstances. 

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Lenders look at your overall financial situation when evaluating your loan application. That means they’ll look at your other debts, including your student loans, and compare them to your income. If your debt-to-income ratio is high, they might not approve your application. For example, if you’re a full-time student with loans but no income, it may be difficult to get a car loan on your own.

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Lenders might also deny you a car loan if you’ve missed payments on your student loans or other debts in the past or if you have a low credit score. You can improve your chances of a car loan approval by paying down debt, adding a co-signer to your application, or refinancing your private student loans.

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How to get a car loan with student loan debt

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It’s certainly possible to get a car loan with student loans, but you may need to take a few steps to improve your application if you want to boost your odds of approval. Here are a few strategies that can help:

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• Improve your credit score: Consistent, on-time payments are a good way to raise your score, so do everything you can to keep up with your debts.
• Lower your DTI: If you can pay down any of your debt, it will reduce your debt-to-income ratio, making you a more attractive borrower.
• Choose a cheaper or used car: Buying used or opting for a less expensive car will lower the amount you need to borrow, which can help you get approved.
• Make a bigger down payment: Putting more money down can also help reduce what you need to borrow and improve your application.
• Look for the right lender: Some lenders cater to borrowers with student loan debt. Explore credit unions and specialized lenders to find options that work with your situation.

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Should you refinance your car loan if you have student loans?

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Having a car loan with student loans can put a lot of pressure on your budget. You may be able to lower your monthly auto loan payment and give yourself a little breathing room by refinancing. 

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Refinancing your auto loan replaces your old loan with a new one, with a new rate and terms. It may be a better option than refinancing federal student loans, as that could mean you miss out on important benefits, like deferment, forgiveness, or special repayment plans.

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However, refinancing an auto loan sometimes has potential drawbacks. For instance, while you might be able to get a lower monthly payment, the tradeoff can mean extending your loan term and paying more in interest over time. Be sure to weigh the pros and cons of refinancing before making your decision.

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FAQs

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Here are some common questions about getting a car loan with student loans.

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Can you use student loans to pay for car repairs?

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Yes, you may be able to use student loan money to pay for car repairs, as that’s part of the cost to maintain and operate a vehicle you use to get to and from school.

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Can I get a car loan with student loan debt?

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Yes, it’s possible to get a car loan even if you have student loan debt. You’re more likely to be approved for a car loan if you have a steady income, manageable debt, and a good credit score.

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Should I pay down my student loans before getting a car loan?

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If you can pay down your student loans before applying for a car loan, do it — you may have a better shot at being approved. That’s because paying down your loans will lower your debts compared to your income, making you less of a risk to the lender.

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How should I budget for a car loan if I have student loans?

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Add up your monthly expenses, including student loan payments, housing expenses, transportation, and food. Then add enough to cover the auto loan — don’t forget fuel and maintenance costs, too. It’s important to keep a buffer in your budget for emergencies and to cover other expenses as they arise.

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Can I refinance my car loan later if my student loans decrease?

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Yes. If your loans decrease, that could be a good time to refinance your auto loan, because it will lower your debt-to-income ratio. Lenders prefer when borrowers have fewer other debts, because they’re more likely to be able to cover their loan payments.

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