The approval process for auto loans is relatively simple and will take less time than getting a home loan. Since a car loan can still end up taking years to pay off, though, you want to be sure you consider carefully before signing on the dotted line. Learning how to get approved for auto loans and getting the right loan can help you make smarter financial decisions.
How to Apply for Auto Loans
Applying for auto loans is mostly straightforward, but there are several items you’ll need to add to your to-do list to make it happen:
- Create your budget. Start by using a calculator to figure out where your money goes. Once you know, you can create a budget designed to save you money and keep you on track. Your budget should include all your fixed expenses, necessary expenses and everything else you need to spend money on each month. This makes it easier to see how much money you have left over for getting a car.
- Get serious about your credit. Lenders will use your credit rating to decide whether you are approved for a loan and to determine what interest rate you’ll pay. The higher your credit score, the more likely you are to get an auto loan as well as a good interest rate. Your credit score is a three-digit number that estimates how good your financial history has been. It’s based on things such as paying your bills on time, having manageable amounts of credit and having a credit history. It does not have to do with your income. You can get a copy of your credit report to check for any errors, and you can pay to get a credit score number so you can see what you’re working with. If your credit is low, you might want to put off applying for an auto loan until you can improve your credit.
- Calculate how long it will take to pay off your auto loan. How long will you have to be in debt? Use our loan payoff calculator to help you determine whether you will be in debt for longer than you expect on the car or whether the car loan you are considering is for a reasonable term.
- Decide how much you can afford. Use our calculator to see how to calculate auto loan payments. By making changes to your down payment, the size of the loan and the terms, you can determine how much car you can afford.
- Gather all your documentation. It takes a surprising amount of paperwork to apply for a car loan. Before you apply, make sure you have proof of income, proof of residency and any other financial papers that can help you apply and show a lender you’re ready for the financial possibility of financing. Gathering up all your financial documents can also help you understand how ready you are for the responsibility of the loan.
- Get your finances into shape. If you have a little bit of time and don’t need a car right away, you can save a lot of money on your car loan by getting your finances in order. Paying down any debt you have makes you more attractive to lenders and ensures you have more money every month you can put toward your car.
- Start saving. Saving money can help you put down a bigger down payment, which can reduce the amount of loan you need and can, therefore, make your loan far more affordable. Saving up money in an emergency fund is also important because it ensures you can make your car payments on time, no matter what. And don’t forget, a car loan is only part of the expenses. You’ll have to pay for maintenance, gas, insurance and other expenses associated with owning a car, too. Make sure you save up enough for those costs as well.
- Find the right lender. The right lender is one offering a car loan with the right payments and the right interest rates for you. It’s also someone you feel comfortable with, has a good reputation and is willing to work with you through the entire application process.
- Get preapproved. If you’re going to be looking at cars, getting preapproval ensures most things are in place so that when you find the right vehicle, you can get your car quickly.
Whether you’re wondering how to find out the payoff amount on a car loan or trying to figure out how much you can afford, Money Help Center calculators are unbiased third-party resources that help you add up the numbers so you can make better financial decisions. Our calculators are free to use and aren’t affiliated with third-party vendors, so you get an unbiased look at your financial possibilities.