Can I Use Student Loans to Buy a Car? (2024)

FAQs

Can you use student loans to pay for a car? ›

“This allowance may also include costs for operating and maintaining a vehicle that is used to transport the student to and from school, but not for the purchase of a vehicle.” That means unfortunately you can't use student loans to buy a car., no matter what type of student loan you have.

Borrowers with a lot of debt from credit cards, student loans, or other debt are considered riskier than those with a low debt-to-income ratio. If your credit profile is considered risky, you're more likely to get a higher interest rate on your loan. In some cases, you might even be denied.

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.

Technically, you're supposed to only use student loan funds on qualified educational expenses, such as tuition, books, and room and board.

Nope, don't use student loans for these items

Vacations: Sure, spring break travel is fun, but it's not necessary for your education. Debt: Don't use your loan to pay off credit cards, a car note, or other debt. You also can't use it to pay for a down payment on a new house or condo.

While technically you can spend your student loan refund on anything, it's wise to use it for other education costs, and only if you need to. Otherwise, it's best to return it.

The Department of Education forbids using federal student loans to buy a car, so it's safe to assume the same applies to car leases.

How student loans affect your credit score. Student loans are a type of installment loan, similar to a car loan, personal loan, or mortgage. They are part of your credit report, and can impact your payment history, length of your credit history and credit mix. Paying on time could help your score.

Borrowing to earn a four-year college degree typically pays off, according to research from the College Board, a company that helps prepare students for higher education. This conclusion holds true even after considering the time out of the labor force when a student could have been earning money.

Student loans affect your mortgage application by increasing your debt-to-income ratio. Switching to an income-driven repayment plan may help you qualify for a home loan.

Can you get in trouble for using student loans? ›

Students who spend their federal loan money on noneducational expenses may not be breaking the law, but they could face legal action from the DOE if their actions are discovered. In some cases, this may include repaying subsidized interest.

The college experience is all about learning how to be independent, and for many students, it's the first time. This newfound independence can include making different kinds of large-scale purchases you've never made before—including purchasing a car. Having a car is an essential part of independence.

Your school will apply those funds to tuition and fees first. If there are funds left over, it will send you a check, which you can use for education-related expenses like housing, groceries, bills and more. In some cases, students end up with more money than they need.

Any money left over is paid to you directly for other education expenses. If you get your loan money, but then you realize that you don't need the money after all, you may cancel all or part of your loan within 120 days of receiving it and no interest or fees will be charged.

Student loan cash-out refinance programs allow student loan debt repayment through a home loan refinance. To be eligible, at least one student loan must be paid off by sending funds to the student loan servicer at closing. Unless stated otherwise, all other standard cash-out refinance requirements apply.

Student loans can cover essential living expenses, including accommodation, meals, transportation, utilities, books, and personal and housing supplies. If you have kids, you can also use student loans to pay for child care expenses.

If that's not enough money to cover your tuition, you can also apply for PLUS loans up to the full cost of attendance, which is determined by your school's financial aid office and includes estimated living expenses. Parents can apply for Parent PLUS loans, and independent students can also apply for Direct PLUS loans.

Typically, the school first applies your grant or loan money toward your tuition, fees, and (if you live on campus) room and board. Any money left over is paid to you directly for other education expenses.

Federal student loans have a lot of benefits over auto loans. As such, it can make sense to focus on paying down your auto loan first. You can pause payments on student loans without penalty. If you return to school, you can defer payment on your existing student loans.