Car finance for students: With guarantors or collateral to your own car
05.07.2025
6
Minutes
Katrin Straub
Managing Director at nextsure
Having your own car while studying seems out of reach for many. Banks often hesitate because of a lack of collateral and irregular income. But there are tried-and-tested ways that car finance for students can work with guarantors or collateral.
The topic in brief and concise terms
Students can obtain car financing through a guarantor with good creditworthiness or by assigning the vehicle as security.
A self-debtor’s guarantee is standard for banks, but it carries a high risk for the guarantor, as they are directly liable.
The transfer of ownership as security, where the vehicle registration certificate serves as collateral, can lead to more favourable interest rates.
The starting point: Why banks take a close look at students
Banks often assess student loan applications with caution. The main reason is the usually low or irregular income; BAföG or maintenance payments are generally not counted as eligible income. Moreover, young people often have a short credit history, which can lead to a below-average SCHUFA score, simply because there is a lack of reference data. For lenders, this means a higher default risk of up to 15 per cent compared with employees. A permanent residence in Germany and being of legal age are basic requirements, but usually are not enough on their own. This financial uncertainty is the core of the problem that needs to be solved.
The guarantor as proof of trust: How financing works
One of the most common solutions is to include a guarantor in the loan agreement. Usually, parents or close relatives step in here, as they have a good credit rating and a stable income. The guarantor contractually undertakes to cover the instalments if the student becomes unable to pay. Banks almost always prefer a direct guarantee, which allows them to contact the guarantor directly in the event of a default, without first having to attempt enforcement against the actual borrower, without first having to attempt enforcement against the actual borrower. This form of security significantly reduces the risk for the bank and increases the chance of a loan approval by more than 50 per cent. With a guarantor, the car loan despite probationary period or studies becomes realistic. The legal obligations of the guarantor are clearly regulated in the German Civil Code (BGB) and should not be underestimated.
Security transfer of ownership: using the car as collateral
An alternative to a guarantee is the transfer of ownership of the financed vehicle as security. In this arrangement, the car itself serves as loan security. Legally, the borrower transfers ownership of the vehicle to the bank for the duration of the finance, but remains its possessor and may use it without restriction. The registration certificate part II (vehicle registration document) is lodged with the bank as security, preventing the car from being sold without the bank's consent. This method is standard for earmarked car loans and often leads to more favourable interest rates than unsecured instalment loans. Once the final instalment has been paid, ownership automatically reverts to the borrower. This option is particularly interesting for those who cannot or do not wish to use a person as guarantor and are seeking clear used car finance.
Step by step to successful car financing as a student
Good preparation is crucial to maximise your chances of securing a loan. With a clear strategy, the process can be mastered in four steps:
Check and prepare your credit rating: Request a free Schufa self-assessment report to know your score. A score above 90 per cent is considered a solid basis.
Find a suitable guarantor: Speak with potential guarantors from your family about their willingness and financial capability. The guarantor should have a permanent employment contract and a clean Schufa record.
Compile the documents: Prepare all the necessary documents. These include your identity card, certificate of enrolment, any proof of income (e.g. from a part-time job), as well as the guarantor’s payslips and Schufa report.
Compare offers: Obtain several loan offers. Pay attention not only to the effective annual interest rate, but also to flexible terms such as free special repayments or the option to pause instalments. A straightforward student loan can offer advantages here.
This structured approach increases the likelihood of approval by at least 30 per cent.
Expert tips: Avoid hidden costs and optimise terms
When financing a car for students, there are a few pitfalls that can be avoided with the right knowledge. For example, a loan term that is too long leads to lower monthly instalments, but overall to significantly higher interest costs of up to 20 per cent over the term. Our expert tip: choose the shortest term that your monthly budget allows. Also pay attention to the option of making free unscheduled repayments to pay off the loan faster when unexpected funds become available. Also compare the terms of any balance protection insurance carefully; it is often expensive and not absolutely necessary. A careful review of the small print, especially the rules in the event of late payment, can protect you from unexpected fees of more than 50 euros per reminder. This way, you not only secure the financing, but also fair conditions, similar to those for a car loan with average creditworthiness.
Legal aspects: What guarantors and borrowers need to know
A significant legal obligation, governed by the German Civil Code (BGB) in sections 765 et seq. A guarantor is liable with all his attachable assets for the borrower's debts. If the guarantee is classified as “immoral” because it places the guarantor under extreme financial strain, it may be invalid – but this is difficult to prove in practice. Our expert tip: The guarantee agreement should clearly limit the liability amount and ideally be structured as a guarantee upon default. In the usual suretyship with waiver of the defence of prior action, the guarantor waives the “defence of prior action” (§ 771 BGB), which entitles the bank to take action against him immediately. Financing a driving licence can also be arranged through a loan with small instalments, with similar legal principles applying.
A classic instalment loan is not always the best solution for student mobility. It is worth considering other options too, which often offer more flexibility with lower financial risk. Here are three popular alternatives:
Car leasing: Instead of buying the vehicle, you only pay for its use over a fixed period, usually 24 or 36 months. The monthly instalments are often lower than with finance.
Car subscription: This model offers maximum flexibility. One monthly payment already includes all costs such as insurance, tax, maintenance and tyres – only fuel is extra. The terms are very short, often just six months.
Buy a low-cost used car: A smaller loan for a reliable used car reduces the financing amount significantly. A trainee loan for the first car can serve as a model here, as the financial starting position is comparable.
These alternatives can reduce financial pressure and fit the life stage of studying much better.
Conclusion: With the right cover to the student’s dream car
Car financing for students is not impossible, but it does require careful planning and the right security strategy. Whether through a guarantor with strong finances or the transfer of ownership of the vehicle as security – both routes pave the way to a successful loan agreement. The key to success lies in transparent communication with the bank and a realistic assessment of your own financial options. Good preparation and comparing different offers protect against costly mistakes and ensure lasting enjoyment of your own car. The right car & mobility insurance rounds off the protection for your new vehicle. Request an individual risk analysis now: Have your insurance situation checked free of charge and receive specific suggestions for improvement.
More useful links
CHE provides comprehensive information on student finance in Germany.
Statista provides statistics on the various types of student finance.
The Federal Statistical Office (Destatis) publishes press releases on relevant data.
The official service Laws on the Internet provides the full legal text of Section 765 of the German Civil Code (BGB) on suretyship.
The Federal Agency for Civic Education (bpb) explains the term suretyship in its legal glossary.
The KfW provides information about its student loan as a funding product for private individuals.
The Consumer Advice Centre provides important information on cancelling loans, especially for car finance.
The Deutsche Bundesbank provides statistics on interest rates for consumer loans to private households.
FAQ
How high can a car loan for a student be?
The loan amount depends on the guarantor’s creditworthiness or the value of the collateral. As a rule, the sums for students range between €5,000 and €15,000, which is enough for a decent second-hand car or a small car.
What happens if I can no longer pay the instalments as a student?
If you can no longer pay the instalments, the bank will, in the case of a guarantee, contact your guarantor directly and demand the outstanding payments from them. In the case of a security transfer, the bank can repossess and sell the vehicle to cover the remaining debt.
Can I repay the loan faster?
Yes, many modern loan agreements allow free special repayments. This lets you pay off the loan more quickly and save on interest costs. When signing the contract, make sure this option is included without any additional fees.
What role does the Schufa score play in car finance for students?
The Schufa score is very important. Since students often only have a low score, the creditworthiness of the guarantor becomes even more crucial. A good score for the guarantor (above 95 per cent) is often the prerequisite for loan approval on fair terms.
Is leasing a good alternative for students?
Leasing can be a good alternative, as the monthly instalments are often lower than with finance. However, a credit check is also required here, and often a deposit or a guarantor. At the end of the term, the car does not belong to you.
What documents do I need for the application?
You will need your identity card, a current certificate of enrolment and, if applicable, proof of additional income. Your guarantor must provide their last three payslips, an employment contract and a SCHUFA credit report.
