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Full Guide to Car Loans for Students in the US

Full Guide to Car Loans for Students in the US

Full Guide to Car Loans for Students in the US

Aug 31, 2025

Sam Lipscomb

3

min

For many students in the US, a car is more than just convenience - it’s often a necessity for commuting to classes, work, and daily life. But most students don’t have enough savings to buy a car outright. That’s where car loans come in. This complete guide will walk you through every stage of the process: what a car loan is, how credit scores matter, saving for a down payment, understanding interest rates, choosing lenders, applying, managing payments, and even refinancing. Along the way, you’ll find practical tools and resources to make each step easier.


1. What a Car Loan Really Is

A car loan is money borrowed from a lender (bank, credit union, or dealership) to buy a car. You repay it monthly with interest. Some terms to keep in mind:


  • Principal: The amount you borrow after any down payment.

  • Interest: The cost of borrowing, expressed as a percentage.

  • APR: A more complete measure that includes interest + lender fees.

  • Collateral: The car itself; if you don’t pay, the lender can repossess it.

  • Loan Term: The repayment period, typically 24 - 72 months. Shorter terms = higher payments but less total interest; longer terms = smaller payments but more interest over time.


2. Credit Scores and Why They Matter

Your credit score (300 - 850) is your financial report card. Lenders use it to decide whether to approve your loan and at what rate.


Factors that make up your score:

  • Payment history - Pay on time, always.

  • Credit utilization - Keep balances low, ideally under 30%.

  • Length of history - The longer, the better.

  • Types of credit - A mix shows responsibility.

  • New credit - Too many inquiries lower your score.


Tools to check and build credit:

  • Credit Karma or Experian Free Credit Check - see your score.

  • AnnualCreditReport.com - pull official reports for free (once per year from each bureau).

  • Fizz - a student-friendly way to build credit without hidden fees, debt, or interest.


3. Down Payments - How Much and Why

A down payment reduces your loan size, which lowers your monthly payments and total interest.


  • Traditional target: 20% of the car price.

  • Realistic for students: Even 5-10% makes a difference.

  • Other benefits: Easier approval, less risk of owing more than the car is worth (“upside down”).

Tools to save smarter:

  • Automatic transfers from checking to savings.

  • Use budget apps like Fizz or YNAB (You Need a Budget) to track progress.

  • High-yield savings accounts (HYSA) for slightly faster growth.


4. Interest Rates and Loan Terms Explained

Interest rates are the hidden cost of your loan.


  • High credit = lower interest rates = big savings.

  • APR is the true cost - always compare APRs, not just interest.

Loan terms:

  • Short (24-36 months) → higher monthly, less interest overall.

  • Long (60-72 months) → smaller monthly, but more total interest.
    Tool: Try Bankrate Auto Loan Calculator or NerdWallet Auto Loan Calculator to compare different scenarios.


5. Co-signers - A Common Student Strategy

If your credit or income isn’t strong enough, you may need a co-signer (usually a parent or relative).


  • Pros: Increases approval odds, better rates.

  • Cons: They share liability; missed payments damage both of your credit scores.

  • Tip: Communicate openly and set up auto-pay to avoid risk.


6. Budgeting for Your Car Loan

A loan isn’t just about monthly payments - you need to account for the full cost of owning a car.


Include these in your budget:

  • Loan payment.

  • Insurance (often higher for young drivers).

  • Gas.

  • Maintenance & repairs.

  • Registration & fees.
    Rule of thumb: Keep total car expenses below 15-20% of your monthly income.

    Tools:

  • Fizz, YNAB, or EveryDollar - track all expenses.

  • GasBuddy - find cheaper fuel.


7. Choosing the Right Lender

Not all lenders are equal:


  • Banks - traditional but stricter requirements.

  • Credit unions often offer lower rates and are student-friendly.

  • Online lenders - fast applications, but watch for hidden fees.

  • Dealership financing - convenient but not always cheapest.
    Tip: Compare at least 3 lenders.

Tools:

  • LendingTree Auto Loans - compare offers in one place.

  • Local credit unions near your school - many offer special student programs.


8. The Loan Application Process

Step 1: Gather documents – ID, proof of income, proof of residence, and vehicle info.

Step 2: Check your credit – Don’t apply blindly:

AnnualCreditReport.com – free reports from Experian, Equifax, and TransUnion.Credit Karma/Experian – free score checks.

Step 3: Decide on a co-signer if needed.

Step 4: Apply to multiple lenders – Do this within 14 days (safe across all credit models; newer FICO scores give you up to 45 days).

Step 5: Review offers carefully – Don’t just look at the monthly payment. Compare APRs, fees, and flexibility.


9. Managing Payments After Approval

Getting the loan is just the start. Staying on top of it builds your credit and keeps stress low.


  • Set up auto-pay - never miss a payment.

  • Align due dates with payday if possible.

  • Build a buffer fund ($200-300) for emergencies.

  • Pay extra when you can - make sure it applies to principal.

Tools:

  • Lender mobile apps - many let you track and manage payments.

  • Personal finance apps like Monarch Money to track debt payoff.


10. Refinancing or Paying Off Early

As your credit improves or your income grows, you can restructure your loan.


  • Refinance: Swap for a new loan with better terms. Best if credit improved or market rates dropped.

  • Pay off early: Add extra to monthly payments or make lump-sum payments.
    Always check for prepayment penalties.

Tools:

  • Auto Refinance Calculators (Bankrate, NerdWallet) - see if it’s worth it.

  • Your lender’s customer portal - check rules before making extra payments.

Quick-Start Checklist (Bonus Summary)

  •  Know what a car loan is.

  •  Build credit first (use Fizz for safe credit building).

  •  Save something for a down payment.

  •  Keep car costs under 15-20% of income.

  • Compare lenders - use calculators & online marketplaces.

  •  Apply smart (bundle applications within 14 days).

  •  Manage payments automatically.

  •  Refinance or pay off early when possible.


Closing Note

Car loans can either be a burden or a stepping stone. If you build credit, budget smartly, and use the right tools, you’ll not only get the car you need but also build a financial track record that helps for future loans, apartments, or even jobs.
Ready to build your credit now so your first car loan is cheaper and easier? Check out Fizz.



Sam Lipscomb

Author bio

Sam is a Kenyon College alum and is head of content at Fizz. He's been a go to personal finance resource among his peers since getting his first credit card during his sophomore year of college. He hails from Washington, DC, loves all things aviation, and currently lives in Los Angeles.

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450 Broadway, Level 2, New York, NY 10013. All rights reserved. FIZZ® is registered in the U.S. Patent and Trademark Office.

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All activities conducted by Fizz as program manager in connection with the Fizz Card and the corresponding line of credit are conducted by Fizz Technologies, Inc. (NMLS: 2522542).


Membership is subject to a periodic, recurring subscription fee. Fizz Members may choose to apply for a Fizz Card, but are not required to. Fizz Membership does not guarantee access to a Fizz Card. Application and eligibility restrictions apply. ¹Over $300 in annual value of Fizz Card based on cash value available to Fizz Card users assuming half of all available rewards and promotions are used. Actual results may vary. To opt out of future recurring subscription charges, Members may cancel their Membership through the app at any time prior to their next billing date. Cardholders who cancel their Membership will lose access to their Fizz Card and line of credit at the end of their subscription term. Closing a line of credit may negatively impact your credit score.


Fizz cardholders: Fizz reports your payment history on the revolving, open-end line of credit accessed by your Fizz Card. Increases or specific changes to your credit score are not guaranteed. Impact on your credit score may vary depending on your use. Fizz is required to report late payments, missed payments, or other defaults on your account, which may negatively impact your credit score. Credit scores are independently determined by credit bureaus based on a number of factors, including your activity with other creditors. The Fizz Card and related services will not remove negative credit history from your credit report. Fizz, on behalf of Lead Bank, will report your activities to Experian®  and Transunion® .


For additional information, terms and conditions applicable to your use of Fizz’s services, please consult Fizz’s Terms of Use and Privacy Policy, the Cardholder Agreement, any Line of Credit Agreement in effect between you and Lead Bank and any and all other applicable terms, policies and guidelines made available to you through the Fizz services.


Selected customers reviews above describe individual experiences or results. Individuals in TikTok videos featured above are paid spokespeople. Selected customer reviews above describe individual experiences or results. Actual results may vary. App Store rating as of January 2025.


²Credit score sliding scale feature is for informational purposes only. Credit score ranges based on information available on RentSpree. Car loan figures assume a loan value of $30,000 over 72 months and based on information available on CNN. Student loan figures assumes a $35,000 private student loan with a 10-year term and based on information available on CNBC, NerdWallet and Credible. Apartment approval based on information available on BI and RentSpree.


Fizz is not a credit repair tool and does not offer any form of credit counselling services. Fizz makes no representation or promise that it will improve your credit score, history, or profile or provide you with any assistance in that regard. None of Fizz’s services, including your ability to check your credit report and/or score through the Fizz App, is offered or provided with respect to the extension of credit by third parties. Fizz and its affiliates are not credit repair organizations or credit services organizations, and are not offering to sell, provide or perform any service to you for the express or implied purpose of either improving your credit record, credit history or credit rating, obtaining an extension of credit for you, or providing advice or assistance to you with regard to improving your credit record, credit history or credit rating.


For people with disabilities, including those who are visually impaired, deaf, or hard of hearing, we accept messages via our in-app chat, emails at [email protected], and calls on our answering machine at (940) 260-2704. If you leave us a voicemail, please leave your name and number and a member of our customer support team will return your call.

ShoulderTap Technologies, Inc. d/b/a Fizz © 2024.


450 Broadway, Level 2, New York, NY 10013. All rights reserved. FIZZ® is registered in the U.S. Patent and Trademark Office.

ShoulderTap Technologies, Inc. d/b/a Fizz (“Fizz”) is not a bank. The Fizz Debit Mastercard® (“Fizz Card”) is issued by Patriot Bank, N.A., Member FDIC, pursuant to a license from Mastercard® and may be used everywhere Mastercard® debit cards are accepted. Any loans you may be offered in connection with your use of the Fizz Card are originated by Lead Bank, a Missouri state-chartered bank. Any promotions or rewards you may be offered in connection with your use of the Fizz Card are offered and managed by Fizz, not our bank partners.


All activities conducted by Fizz as program manager in connection with the Fizz Card and the corresponding line of credit are conducted by Fizz Technologies, Inc. (NMLS: 2522542).


Membership is subject to a periodic, recurring subscription fee. Fizz Members may choose to apply for a Fizz Card, but are not required to. Fizz Membership does not guarantee access to a Fizz Card. Application and eligibility restrictions apply. ¹Over $300 in annual value of Fizz Card based on cash value available to Fizz Card users assuming half of all available rewards and promotions are used. Actual results may vary. To opt out of future recurring subscription charges, Members may cancel their Membership through the app at any time prior to their next billing date. Cardholders who cancel their Membership will lose access to their Fizz Card and line of credit at the end of their subscription term. Closing a line of credit may negatively impact your credit score.


Fizz cardholders: Fizz reports your payment history on the revolving, open-end line of credit accessed by your Fizz Card. Increases or specific changes to your credit score are not guaranteed. Impact on your credit score may vary depending on your use. Fizz is required to report late payments, missed payments, or other defaults on your account, which may negatively impact your credit score. Credit scores are independently determined by credit bureaus based on a number of factors, including your activity with other creditors. The Fizz Card and related services will not remove negative credit history from your credit report. Fizz, on behalf of Lead Bank, will report your activities to Experian®  and Transunion® .


For additional information, terms and conditions applicable to your use of Fizz’s services, please consult Fizz’s Terms of Use and Privacy Policy, the Cardholder Agreement, any Line of Credit Agreement in effect between you and Lead Bank and any and all other applicable terms, policies and guidelines made available to you through the Fizz services.


Selected customers reviews above describe individual experiences or results. Individuals in TikTok videos featured above are paid spokespeople. Selected customer reviews above describe individual experiences or results. Actual results may vary. App Store rating as of January 2025.


²Credit score sliding scale feature is for informational purposes only. Credit score ranges based on information available on RentSpree. Car loan figures assume a loan value of $30,000 over 72 months and based on information available on CNN. Student loan figures assumes a $35,000 private student loan with a 10-year term and based on information available on CNBC, NerdWallet and Credible. Apartment approval based on information available on BI and RentSpree.


Fizz is not a credit repair tool and does not offer any form of credit counselling services. Fizz makes no representation or promise that it will improve your credit score, history, or profile or provide you with any assistance in that regard. None of Fizz’s services, including your ability to check your credit report and/or score through the Fizz App, is offered or provided with respect to the extension of credit by third parties. Fizz and its affiliates are not credit repair organizations or credit services organizations, and are not offering to sell, provide or perform any service to you for the express or implied purpose of either improving your credit record, credit history or credit rating, obtaining an extension of credit for you, or providing advice or assistance to you with regard to improving your credit record, credit history or credit rating.


For people with disabilities, including those who are visually impaired, deaf, or hard of hearing, we accept messages via our in-app chat, emails at [email protected], and calls on our answering machine at (940) 260-2704. If you leave us a voicemail, please leave your name and number and a member of our customer support team will return your call.

ShoulderTap Technologies, Inc. d/b/a Fizz © 2024.


450 Broadway, Level 2, New York, NY 10013. All rights reserved. FIZZ® is registered in the U.S. Patent and Trademark Office.

ShoulderTap Technologies, Inc. d/b/a Fizz (“Fizz”) is not a bank. The Fizz Debit Mastercard® (“Fizz Card”) is issued by Patriot Bank, N.A., Member FDIC, pursuant to a license from Mastercard® and may be used everywhere Mastercard® debit cards are accepted. Any loans you may be offered in connection with your use of the Fizz Card are originated by Lead Bank, a Missouri state-chartered bank. Any promotions or rewards you may be offered in connection with your use of the Fizz Card are offered and managed by Fizz, not our bank partners.


All activities conducted by Fizz as program manager in connection with the Fizz Card and the corresponding line of credit are conducted by Fizz Technologies, Inc. (NMLS: 2522542).


Membership is subject to a periodic, recurring subscription fee. Fizz Members may choose to apply for a Fizz Card, but are not required to. Fizz Membership does not guarantee access to a Fizz Card. Application and eligibility restrictions apply. ¹Over $300 in annual value of Fizz Card based on cash value available to Fizz Card users assuming half of all available rewards and promotions are used. Actual results may vary. To opt out of future recurring subscription charges, Members may cancel their Membership through the app at any time prior to their next billing date. Cardholders who cancel their Membership will lose access to their Fizz Card and line of credit at the end of their subscription term. Closing a line of credit may negatively impact your credit score.


Fizz cardholders: Fizz reports your payment history on the revolving, open-end line of credit accessed by your Fizz Card. Increases or specific changes to your credit score are not guaranteed. Impact on your credit score may vary depending on your use. Fizz is required to report late payments, missed payments, or other defaults on your account, which may negatively impact your credit score. Credit scores are independently determined by credit bureaus based on a number of factors, including your activity with other creditors. The Fizz Card and related services will not remove negative credit history from your credit report. Fizz, on behalf of Lead Bank, will report your activities to Experian®  and Transunion® .


For additional information, terms and conditions applicable to your use of Fizz’s services, please consult Fizz’s Terms of Use and Privacy Policy, the Cardholder Agreement, any Line of Credit Agreement in effect between you and Lead Bank and any and all other applicable terms, policies and guidelines made available to you through the Fizz services.


Selected customers reviews above describe individual experiences or results. Individuals in TikTok videos featured above are paid spokespeople. Selected customer reviews above describe individual experiences or results. Actual results may vary. App Store rating as of January 2025.


²Credit score sliding scale feature is for informational purposes only. Credit score ranges based on information available on RentSpree. Car loan figures assume a loan value of $30,000 over 72 months and based on information available on CNN. Student loan figures assumes a $35,000 private student loan with a 10-year term and based on information available on CNBC, NerdWallet and Credible. Apartment approval based on information available on BI and RentSpree.


Fizz is not a credit repair tool and does not offer any form of credit counselling services. Fizz makes no representation or promise that it will improve your credit score, history, or profile or provide you with any assistance in that regard. None of Fizz’s services, including your ability to check your credit report and/or score through the Fizz App, is offered or provided with respect to the extension of credit by third parties. Fizz and its affiliates are not credit repair organizations or credit services organizations, and are not offering to sell, provide or perform any service to you for the express or implied purpose of either improving your credit record, credit history or credit rating, obtaining an extension of credit for you, or providing advice or assistance to you with regard to improving your credit record, credit history or credit rating.


For people with disabilities, including those who are visually impaired, deaf, or hard of hearing, we accept messages via our in-app chat, emails at [email protected], and calls on our answering machine at (940) 260-2704. If you leave us a voicemail, please leave your name and number and a member of our customer support team will return your call.