Car Loans for New College Graduates: 2023 Guide
New college graduates may be eligible for discounts from lenders. Learn about car loans for college students and how to apply for them here.
Written by Brittni Brinn
Reviewed by Jessica Barrett
Getting a car loan as a new graduate doesn’t have to break the bank. Even though it can be a challenge to find financing options as a new graduate, shopping around can save you a lot on your loan payments. Some lenders even offer discounts for new graduates.
You’ve completed your degree! Now that you’ve celebrated your impressive accomplishment, you can turn your thoughts to the future—including getting that new car you’ve always wanted.
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How do car loans work?
A car loan is a sum that you borrow from a lender and pay back over time—plus interest. Depending on the lender, you’ll have different loan terms, loan amounts, interest rates, and more to consider.
A car loan is a secured type of loan—it uses your car as collateral to protect the lender’s investment. If you don’t keep up with your loan payments, the lender is within their legal rights to repossess the car. If you keep up with your payments and completely pay off the loan, you’ll be the full owner of the car by the end of the loan term.
As a new graduate, it may be difficult to find a car loan, especially if you don’t have a steady work situation. But some lenders do try to make it easier for new graduates.
Advantages of car loans for new college graduates
As a new graduate, you’re a desirable customer for most lenders. You’re likely to be more responsible and typically of a younger demographic—and the earlier you become a customer of a car dealership or a credit union, the more you’ll use their services over time.
Here are some advantages of applying for a car loan as a new grad.
- Discounts! To help get new grads set up with a car while they’re still dealing with student debt, lenders may offer discounted rates or programs for drivers with recently-completed degrees.
- A car loan can be a great way to rebuild your credit. If you’ve already proved yourself to be reliable with paying off your student debt, it may reflect favorably on you when you’re applying for a car loan.
Key Takeaway If you’re financing a car right out of college, there may be discounts and programs you can apply for to save money on your loan.
What makes it hard to get a car loan as a new college graduate?
On the flip side, looking for a car loan fresh out of college comes with drawbacks for lenders as well. A few factors can make it difficult to successfully apply for a car loan as a new graduate.
- Unpaid student debt may prevent you from getting a loan from certain lenders.
- If you don’t have a steady work situation or if you’re still looking for a position in your field, it can affect your eligibility.
- Low savings can also get in the way of fulfilling a hefty down payment.
Some lenders are willing to look past these factors if you have excellent final grades or other recognition from your college. And a part-time job doesn’t hurt, either—if you’re able to work for a bit before you apply for a loan, it can greatly improve your standing with potential lenders.
MORE: How to get a cosigner for a bad credit car loan
How to get a new college graduate car loan
Now’s the time to put your post-secondary research skills to the test! There’s a lot to consider when you’re looking for a car loan. By taking the following steps, you can go into your loan negotiations prepared and with confidence.
1. Take stock of your credit and finances
Check your credit score. Most lenders will look favorably on your loan if you have a credit rating of 661 or above. If it’s lower than that, you might have to take on additional restrictions or bring on a co-signer before a lender will accept your application for a loan.
Before you head off to the dealership, sit down with your finances and consider how much you can afford for car loan payments. Your monthly expenses shouldn’t exceed 20% of your monthly income—make sure that you factor in gas, insurance, and your living expenses, including your student loan payments.
2. Consider a loan from a credit union
Although a bank is a more traditional route for getting your car loan, it’s worth checking out what kinds of rates and discounts might be available at a credit union. They may have better deals for new graduates, as well as lower interest rates in general.
Also, credit unions will generally cover older models and more used cars than a bank will. Even though you may have to pay higher rates, the overall loan will be less for used cars.
3. Get preapproved before you shop for cars
Getting preapproved for a loan is always a good step. Preapproval gives you more negotiating power when you’re deciding the terms of your loan with the lender. It will also save you time when you’re ready to sign off on your loan.
Most lenders will have preapproval forms available online to make it even more convenient.
MORE: How to save on car insurance with a good student discount
4. Consider a co-signer
If you don’t have great credit or a steady job, you may have to bring on a co-signer to satisfy your loan agreement. The co-signer agrees to take over payments on the loan if you can’t pay them.
Having a co-signer isn’t a bad thing—it puts the lender’s mind at ease and gives you more accountability for your loan agreement.
5. Be prepared to wait for the best deal
When you’re looking for a loan, don’t be afraid to shop around! Check out at least three lenders and what they offer before you settle on a loan. And if there isn’t a loan with good conditions available, you can always wait a while, build up your credit and finances, and try again.
Another way to get the best deal on a car loan is to ask about discounts, as not all lenders will advertise which ones they have available. As a new graduate, there are programs at some dealerships, banks, and credit unions for responsible new drivers just coming out of college. Even car manufacturers offer discounts on new and certified pre-owned vehicles—you may be limited to certain models, but you could save a lot on your loan.
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Do car dealerships consider student loans?
Yes. When determining your loan rates, the lender will look at your student debt and your payment history. If your student loan is in bad shape, your car loan may be turned down.
Do I need to have a job to apply for a car loan?
It’s unlikely that you’ll be able to get a car loan without a steady source of income. However, if you have savings, a job prospect or intention to apply, and a co-signer, some lenders may take a look at your loan, especially if you have excellent credit.
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