Car financing for students: Getting your own car with guarantors or collateral
5 Jul 2025
7
Minutes
Katrin Straub
CEO at nextsure
Owning a car during university seems unattainable for many. Banks often hesitate due to a lack of collateral and irregular income. However, there are proven ways for students to successfully secure car financing with guarantors or collateral.
The topic in brief and concise terms
Students can obtain car financing through a guarantor with good credit or by using the vehicle as collateral.
An independent surety bond is the standard for banks, but it poses a high risk for the guarantor as they are directly liable.
The transfer of ownership as security, where the vehicle registration document serves as collateral, can lead to more favourable interest rates.
The situation: Why banks take a closer look at students
Banks often evaluate loan applications from students with caution. The main reason is the typically low or irregular income; BAföG or maintenance are generally not considered as eligible income. Additionally, young people often have a short credit history, which can lead to a below-average Schufa score simply because experience is lacking. For lenders, this means a higher default risk of up to 15 percent compared to employees. A permanent residence in Germany and being of legal age are basic requirements, but on their own often not sufficient. This financial uncertainty is the core problem that needs to be addressed.
The guarantor as a proof of trust: How financing works
One of the most common solutions is the inclusion of a guarantor in the loan agreement. Usually, parents or close relatives step in, who have good credit and a stable income. The guarantor is contractually obliged to cover the installments if the student becomes insolvent. Banks almost always prefer an unconditional guarantor agreement, where they can directly approach the guarantor in the event of a payment default, without first having to attempt foreclosure with the actual borrower. This form of security significantly reduces the risk for the bank and increases the chance of loan approval by more than 50 percent. With a guarantor, the car loan despite probationary period or study becomes realistic. The legal obligations of the guarantor are clearly laid out in the German Civil Code (BGB) and should not be underestimated.
Transfer of Title by Way of Security: Using the Car as Collateral
An alternative to a guarantee is the transfer of ownership of the financed vehicle as security. In this case, the car itself becomes the loan collateral. Legally, the borrower transfers ownership of the vehicle to the bank for the duration of the financing but remains its possessor and can use it without restriction. The registration certificate part II (vehicle registration document) is deposited with the bank as security, which prevents the car from being sold without the bank's consent. This method is standard for earmarked car loans and often leads to lower interest rates than with freely usable installment loans. Once the final installment is paid, ownership automatically reverts to the borrower. This option is particularly appealing for those who cannot or do not wish to use someone as a guarantor and are seeking a clear used car financing.
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 creditworthiness: Request a free credit report to know your score. A score above 90 percent is considered a solid basis.
Find a suitable guarantor: Speak to potential family guarantors about their willingness and financial capability. The guarantor should have a permanent employment contract and a clean credit report.
Gather documents: Prepare all necessary documents. These include ID card, enrolment certificate, any income statements (e.g., from a part-time job), as well as the guarantor's payslips and credit report.
Compare offers: Obtain multiple loan offers. Pay attention not only to the effective annual interest rate but also to flexible terms such as free extra payments or the possibility of payment breaks. An unbureaucratic student loan can offer advantages here.
This structured approach increases the likelihood of approval by at least 30 percent.
Expert Tips: Avoid Cost Pitfalls and Optimise Conditions
There are some pitfalls to watch out for when it comes to car financing for students, which can be avoided with the right knowledge. A loan period that is too long may lead to lower monthly payments, but overall it results in significantly higher interest costs of up to 20 percent over the term. Our expert tip: Choose the shortest possible term that your monthly budget allows. Also, pay attention to the possibility of free special repayments to pay off the loan faster with unexpected cash inflows. Carefully compare the terms of a residual debt insurance; it is often expensive and not strictly necessary. A thorough examination of the fine print, especially the regulations regarding default, can protect you from unexpected fees of over 50 euros per reminder. This way, you secure not only the financing but also fair conditions, similar to a car loan with medium creditworthiness.
Legal Aspects: What Guarantors and Borrowers Need to Know
A significant legal obligation regulated in the German Civil Code (BGB) under paragraphs 765 ff. A guarantor is liable with all of their seizable assets for the debts of the borrower. If the guarantee is deemed 'immoral' because it places extreme financial strain on the guarantor, it may be null and void – however, this is difficult to prove in practice. Our expert tip: The guarantee contract should clearly limit the liability amount and ideally be structured as a deficiency guarantee. In the usual direct guaranty, the guarantor waives the 'objection of prior enforcement' (§ 771 BGB), allowing the bank to access them immediately. Financing a driving licence can also be achieved through a loan with small instalments, with similar legal principles applying.
Explore smart alternatives to traditional car financing
The traditional installment loan isn't always the best solution for student mobility. It's worth considering other options that often offer more flexibility with less financial risk. Here are three popular alternatives:
Car Leasing: Instead of purchasing the vehicle, you only pay for its use over a predetermined period, usually 24 or 36 months. The monthly payments are often lower than with financing.
Car Subscription: This model offers maximum flexibility. A monthly fee covers all costs like insurance, taxes, maintenance, and tyres—only fuel is extra. The contract terms are often very short at just six months.
Buying an Affordable Used Car: A smaller loan for a reliable used car significantly reduces the financing amount. An apprentice loan for the first car can serve as a model here, as the financial starting point is comparable.
These alternatives can reduce financial pressure and are better suited to the student phase of life.
Conclusion: With the right coverage for your dream student car
More useful links
CHE provides comprehensive information about student financing in Germany.
Statista offers statistics on the different types of student financing.
The Federal Statistical Office (Destatis) publishes press releases on relevant data.
The official service Gesetze im Internet provides the complete legal text of § 765 BGB concerning guarantees.
The Federal Agency for Civic Education (bpb) explains the concept of guarantees in its legal lexicon.
KfW provides information about its student loan as a funding product for individuals.
The Consumer Advice Centre offers essential information on loan cancellations, especially concerning car financing.
The German Bundesbank provides statistics on interest rates for consumer loans to private households.
FAQ
What is the maximum amount a student can borrow for a car loan?
The credit amount depends on the guarantor's creditworthiness or the value of the collateral. Generally, the amounts for students range between €5,000 and €15,000, which is sufficient for a solid used car or a small car.
What happens if, as a student, I can no longer pay the installments?
If you can no longer make your instalment payments, the bank will contact your guarantor directly and demand the outstanding payments from them. In the case of a security transfer, the bank can seize 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 enables you to pay off the loan faster and save on interest costs. When signing the contract, make sure this option is included without additional fees.
What role does the Schufa score play in car financing for students?
The Schufa score is very important. Since students often have a low score, the creditworthiness of the guarantor becomes even more crucial. A good guarantor score (over 95 percent) is often a prerequisite for an approval of a loan under fair conditions.
Is leasing a good alternative for students?
Leasing can be a good alternative, as the monthly payments are often lower than with financing. However, a credit check and often a down payment or guarantor are necessary here as well. At the end of the term, the car is not yours.
What documents do I need for the application?
You will need your identity card, a current certificate of enrollment, and, if applicable, proof of additional income. Your guarantor must provide their last three payslips, an employment contract, and a SCHUFA credit report.
