Can I Be Denied a Car Loan Because of Student Loans?

Article originally published November 17th, 2016. Updated February 16th, 2023.

As of late 2022, more than 42 million people are dealing with student loan debt in the United States, and the average balance per person is more than $37,000.

Those debts can impact personal finances in a number of ways. When you have to make student loan payments each month, you have less income for other expenses and loans. And if you don’t make your loan payments as agreed, those issues can drive down your credit score. Find out more below about how student loans can impact your ability to get a car loan to understand why you might have been denied a car loan because of student loans or whether that might be a potential outcome for you.

In This Piece:

How Do Student Loans Affect Your Finances?
How Do Student Loans Affect Getting a Car Loan
Getting a Car Loan With Student Debt

How Do Student Loans Affect Your Finances?

Student loans can affect your finances in several ways:

The need to repay them. Student loans typically require monthly repayments once you’re no longer in school, and that impacts your cash flow and reduces your disposable income. The average student loan repayment can be hundreds of dollars a month.
Interest leads to larger expenses over time. Most student loans accrue interest, which increases the amount you have to pay back over time. If you’re not careful about the loans you take out, this can leave you making payments far into the future. That reduces the amount of money you have to save for the future, such as for a home, a car or retirement.
Impact to your credit score. Late or missed student loan payments can negatively impact your credit score, making it harder to secure loans and credit cards in the future. On the flip side, when you make these payments on time, you can build up a positive credit history that includes a well-managed installment loan. That can help you improve your credit score and chances at loan approval.
Qualifying for other loans. Having large student debt can make it challenging to qualify for different types of loans, such as a mortgage. That’s because mortgage lenders want to see that you have enough disposable income to afford your mortgage. According to the Federal Trade Commission, lenders like for your mortgage payments plus your other long-term debt payments—including student loans—to equal 36% or less of your total monthly income.

How Do Student Loans Affect Getting a Car Loan?

A student loan that is in good standing and paid on time is a good way to build a strong payment history. Payment history makes up 35% of your credit score, so good behavior when it comes to paying your student loans is a big plus for your credit. A good credit score can help you get approved for a car loan and get a lower interest rate, which means you pay less over the lifetime of the loan.

But the flip side is also true. If you are late or delinquent on your student loan payments, your credit score can take a nosedive. And qualifying for an auto loan, even if you can afford the payments, can be difficult with lackluster credit. Even if you do qualify, the lender might hit you with a large interest rate or demand a larger down payment.

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Lenders also consider your debt-to-income ratio when you apply for an auto loan. If the auto loan payment, or your overall debt, is a large enough percentage of your income, you might get turned down for the loan or be asked for a larger down payment to qualify.

The same is true if your credit utilization rate is high. Credit utilization is how much debt you are carrying versus how much credit has been extended to you, and it’s the second most important factor when it comes to credit. You generally want to keep your credit utilization ratio less than 30% for the most positive impact to your credit score.

Getting a Car Loan With Student Debt

It’s certainly not impossible to get a car loan with student loan debt. Here are some things you can do to make an approval more likely:

Pay your student loan on time every month. If you are having a difficult month due to an economic hardship, reach out to your lender and ask about a deferment or forbearance. Your payments could be postponed or reduced if you qualify. If neither of those programs is available to you, ask about moving to a new payment plan with a more manageable monthly payment amount. Doing so can protect your credit rating.
Pay down debts. If you’re carrying a big balance on a credit card, pay those purchases off before you apply for a car loan if possible. Doing so could improve your credit utilization rate and bolster your credit score. In some cases, you may be able to dispute student loans or get them forgiven, which can help free up income for a car loan.
Build your credit if you don’t have any other than your student loan. You can do this by applying for a starter credit card, like a secured credit card or student credit card. Making on-time payments and keeping balances low will help you establish your creditworthiness.
Get a cosigner. It may not be ideal, but having someone with good credit, like a parent or guardian, sign on the dotted line with you can make an auto lender more apt to extend financing. Just remember, the cosigner will be held liable for the loan, and any missed payments will also affect their credit score.
Save up for a big down payment. The more money you can put down upfront, the lower your monthly payments will be and the less risk you’ll pose to lenders—and your own budget. That can increase your chances of getting approved.

Learn about options for bad credit. If you’ve struggled with your student loans in the past and negatively impacted your credit with some common student loan mistakes, you may still have some options. Learn about buying a car with bad credit.

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