New Auto Loans

The college student’s traditional 10-speed bicycle isn’t always enough for getting around today’s sprawling university campuses, back and forth to off-campus jobs, and through rush-hour traffic to an apartment across town. But is it realistic to finance a car when your student loan debt is ticking upward with every passing semester?

While starting out life as a new graduate with debt is never ideal, the way you go about tackling both student loans and a car loan can leave you with a reasonable amount of financial breathing room. The trick is not piling on both student loans and car payments at the same time.

Buy a car the smart way

Put your college research skills to work pinning down the right loan and the right car before you even begin looking at individual cars.

Set your budget. How much money do you have for a down payment? How big a monthly payment can you afford to make? Use an  online auto loan payment calculator  to figure out how the interest rate, size, and length of your car loan will affect your monthly payments. Resist the temptation to lower those payments by stretching out the payment term. The longer your loan term, the lower your monthly payments—but the more interest you pay over time. When you already have student loans to deal with, that’s money you can’t afford to add.

Shop for a loan before you shop for a car. Keep your heart from running away with your head by lining up your financing before you shop for a car. Not only does handling the financing first let you shop around for the best financing rates, but it takes the pressure off you at the car lot. Now the burden is on the dealer or seller to cut a great deal in order to earn your business.

Buying a car when you’re in school

When you’re still in school, you need to keep the cost of buying a car to a bare minimum. The smartest method is to self-finance the money and upgrade the car in stages—the method popularized by financial guru Dave Ramsay.

Here’s how it works: Buy an old car for a couple of thousand dollars in cash, and then begin making monthly “car payments” to your own savings account. Once you’ve saved another few thousand dollars, sell the car (hopefully for about as much as you originally paid), and then use that money plus your new car savings to buy a newer, better car. Repeat this process until you find yourself behind the wheel of a reasonably recent model. By the time you graduate, you’ll be in a newish car you’ve paid for entirely with cash—and with no car debt. Happy graduation!

Buying a car as recent grad

New grads often think paying off student loans should be their number one priority. But now that you’re actively making student loan payments, you can’t afford to overextend yourself. What you really need is the safety net of an  emergency fund for handling unexpected expenses.

Stick with the Ramsay method while you build your emergency fund. When you’re finally in a position to finance a car, consider buying a low-mileage used car to take advantage of the price difference between new and used cars. Don’t be tempted by a lease, which leaves you with nothing to trade-in when the lease is up, setting you back to ground zero.

Auto financing options for students

Even first-time student buyers can find competitive financing with the right lenders. A  PenFed new car loan  or  used car loan can get you behind the wheel at a great rate—comparable to what you’re probably paying for your student loan, and maybe even less.

If the entire process feels too intimidating, cut to the chase and use the  PenFed Car Buying Service to make your purchase online. You can search and sort cars by the features you’re looking for, and you’ll get a free CARFAX ^® report on most used cars to ensure you’re choosing a reliable vehicle.