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Car Financing Options for Recent College Graduates

So you’ve just graduated from college, and you’re ready for a new car to transport you through the next chapter in your life. Maybe you’re still holding on to your old beater from high school, or perhaps this is your first time shopping for a car.

Whatever the situation, you’ll want to know your car financing options as a recent graduate of a college or other higher education institution.

Take a look at these financing options and other things to consider before buying a new, used, or certified pre-owned car.

Evaluate Your Needs

Before you set foot in a dealership, you’ll want to determine your needs and estimate your daily commute. For example, if you need to commute to work and it takes 30 minutes or more, you may want to consider a car that gets good gas mileage.

Buying a sleek car or pickup truck might be your ideal ride, but you’ll regret it if the vehicle you end up with gets lower gas mileage. It will especially hurt when you fill the tank with gas and it takes a large chunk of your hard-earned money to do so.

Don’t forget to factor in your life outside work as well. Are you the type of person with multiple people in your vehicle regularly? Or maybe you transport camping equipment or kayaks. If you know you will need a roomy vehicle, don’t settle for a 2-door car with no legroom.

Most importantly, you will need to determine how much car you can afford. Remember, you can always upgrade your car later.

How Much Car Can You Afford?

When it comes time to purchase a new vehicle, the price of the car should be the first consideration. No one wants to pay student loans and a high monthly car payment.

To help you get started, use our car affordability calculator to help you determine the perfect car for you at the payment you can afford.

Remember the 20/4/10 rule when browsing new and used cars online. Read on to learn more.

  • Down payment: When making the down payment on your car, you should put down about 20% of the car’s value.
  • Loan term. The loan term should be no more than four years. Otherwise, you will be paying much more in interest.
  • Payment to income ratio. Car payments should be no more than 10% of your monthly income. This simple rule can help you avoid paying hundreds or thousands more in interest on your depreciating car.

Check out the following discounts that may be available to you as a recent college graduate.

College Graduate Discounts

Besides receiving a degree, being a college or higher education graduate offers some perks for car buyers.

Whether a new or certified pre-owned (CPO) vehicle, most major car manufacturers offer discounts for recent college grads. While discounts vary, they range from about $500 to a couple of thousand dollars depending on the company.

Below is the list of manufacturers that offer discounts for recent college grads. The programs typically apply to those who graduated college in the last two years and are for specific car models. Some financing companies also require good credit and allow students to defer payments up to 90 days in some cases.

  • Acura
  • Audi
  • BMW
  • General Motors (Chevy, GMC, and Buick)
  • Stellantis (Chrysler, Dodge, Jeep, Ram)
  • Ford
  • Honda
  • Hyundai
  • Lexus
  • Lincoln
  • Mercedes-Benz
  • Mini
  • Nissan
  • Subaru
  • Toyota
  • Volkswagon

Car Financing Options for Graduates

There are three financing options for recent college graduates. You could take out a loan, lease a vehicle, or pay in cash. We’ll break down the pros and cons of each.



  • Put money in cash reserves. By taking out a loan on a car you can afford, you’ll save your money for cash reserves or stockpile it for other upcoming needs, such as for a rental agreement or furniture.
  • Gets you in a reliable car. When you find a reliable vehicle that can get you around after graduation, it’s a big plus. It will help you search for a job and get to all the places you need to go. A new vehicle typically means you won’t need to deal with car breakdowns or costly repairs.
  • Better gas mileage. You’re likely to pay less at the gas pump if you choose a newer vehicle that gets great gas mileage.


  • Drag on your budget. If you’re coming out of college with a pile of student loan debt, it’s one more item for your budget. If your down payment isn’t big enough, it could mean being upside down on your car for a while (meaning you owe more on it than it’s worth).
  • Depreciation. Cars depreciate about 20% or more in the first year of ownership. That figure jumps to around 60% after you own the vehicle for five years.
  • Higher interest payment. Another consideration to think about is interest. Let’s say you take out a 60-month loan with an interest rate of 4.25%. If you borrow $25,000 for a car loan with those numbers, you end up paying $2,794 on top of the principal in interest just for borrowing the money. If your credit isn’t good, you’ll end up paying more in interest for the life of the car loan. If you have no credit, ask a dealership about financing options. Often, dealers will take a chance on recent college graduates and offer to finance vehicles. However, a 0% financing deal on a car may not be available to you, so be prepared for a higher interest loan.

How Long Should Your Loan Term Be?

Generally speaking, you should try to keep your loan term at 48-months or four years. This is a typical rule of thumb to help avoid paying more interest than necessary for your vehicle.

However, a longer loan term of 5 years or more can lower your monthly payment. But, while the payments seem cheaper, those will add up to hundreds or thousands more in interest.

Getting stuck with a high monthly payment is why it is always important to keep the 20/4/10 rule in the back of your mind when going through potential loan options. Maintaining your budget from this simple rule will help you avoid falling behind on payments.

Plan ahead with our Car Loan Payment Calculator tool to determine your monthly payments and determine how much you can afford to pay for a car.

Find a new car for sale in your area



  • Drive a new or certified pre-owned car. Leasing offers some nice perks, most notably the ability to drive a reliable new or previously owned car backed by a warranty and a reasonable monthly payment, often with basic maintenance covered.
  • Lower down payment. Leased vehicles typically require a smaller down payment of up to $2,500 on average.
  • Lower car payment. If you want to avoid big car payments, leasing a car with lower monthly installments can be a more affordable way to go. Leasing allows you to drive a car for a set amount of time that you agree upon with the dealer.


  • Limited annual mileage. With a lease, there are constraints on how many miles you can put on the car per year, which places limitations on how far you can drive it, and you’ll be charged more if you go over those miles. This is very important to keep in mind as you travel to work five days a week. Your first job may be further than expected, so be mindful when choosing the number of miles you will be driving annually.
  • No car at the end of the lease. If you decide not to buy the vehicle at the end of the lease, you just made many payments with nothing to show for it, and the dealer will likely turn around and sell it.
  • Expensive way to get around. Leasing is a costly way to operate a vehicle. Basically, what you’re doing with a lease is paying for the depreciation of the car plus a profit for the manufacturer you’re leasing from without actually owning the vehicle. And even though it technically isn’t a loan, meaning there’s technically no interest, there’s still what’s called a “cost of capital” that gets factored into the monthly lease payment. It’s a great deal for the car manufacturer and a not-so-great deal for you.
  • Higher cost to own. At the end of a lease, you have the option to buy the car if you’d like to keep it. However, it’s a gamble that you’ll have more money in the bank to buy the vehicle outright for a lower price stated in your lease. Also, due to the pandemic and microchip shortage, car prices hit new highs. So at the end of a lease, you may be paying more for the car than it’s worth.

Find a Certified Pre-Owned car for sale in your area



  • No payments or interest. No matter what stage of life you’re in, cold hard cash is a fantastic way to buy a car. When you own your car free and clear with the title in your hand, you don’t have to worry about monthly payments, and you pay absolutely nothing in interest.
  • Credit score is not a factor. If your credit score is sub-par, buying a car with cash doesn’t require a credit score at all.
  • Pay student loans off sooner. The driver’s seat is a little more comfortable in a car that you own. Even just thinking about not having a car payment feels pretty good. Since your best wealth-building tool is your income, just let it flow in so you can pay those student loans faster.
  • Grow your wealth. Even if you’ve graduated with no debt, owning a car with no payments makes it easier to save up a fat stack of cash for life’s other necessities as your income grows.


  • Loss of cash reserves. Spending cash on a car reduces your savings, and if you don’t have a job lined up, this could deplete your reserves.
  • May not get a reliable car. If your cash reserves can’t buy you a newer car, you may need to purchase a used vehicle. A limited selection of used cars may prevent you from buying a newer model, which may be more reliable in the long run.
  • Lack of newer safety features. If you’re buying a less expensive new or used vehicle, you may not get the optional safety features, including adaptive cruise control and lane-keeping assist, which can help keep you safe on the road.
  • Not building credit. On the one hand, if you have no credit, paying cash helps. On the other hand, you’re not building your credit, either. You’ll need to come up with other ways to build your credit.

Start Shopping But Don’t Forget Car Insurance

So, if you want a new car right now, taking out a loan or signing up for a lease are good options for getting one, but they come with financial baggage. If you want to get out of debt and build wealth, buying a car with cash is the way to go.

Don’t forget to shop around for car insurance and get several quotes when budgeting for a new, used, or pre-owned vehicle.

To help you shop around for deals, we’ve published several lists about great used cars, trucks, and SUVs you can get for less than $5,000. Some of them may be more modern than you might expect.

Saving up $5,000 is a lot easier to do when you don’t have a car payment weighing down your budget.

Find a used car for sale in your area

Related Articles


What is the Best Car for a College Graduate?

It depends on your specific needs as a driver. If you need a car with excellent gas mileage, then consider a compact car or sedan. An SUV might be a wise choice if you need lots of room to haul things. It is best to evaluate your needs and go from there.

Is There a First Time Car Buyer Loan for College Students?

There is no specific first-time car buyer loan for college students, but multiple discounts are available for college graduates and students.

Are There Car Discounts for College Graduates?

Yes. Many major car manufacturers offer discounts to college graduates, graduate students, and those studying for a degree.

Eric Brandt
Eric Brandt
Eric Brandt is an author specializing in Oversteer content, new car reviews, and finding the best car, truck, and SUV deals each month. Born and raised in Wisconsin, Eric can often be found exploring the north woods on his 1983 Honda Gold Wing when the weather allows it. Father of four, husband of one, and unapologetic minivan enthusiast. Eric mastered driving stick by having a 3-cylinder Chevy... Read More about Eric Brandt

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