How to Get Approved for a Car Loan
If you need a new car, you may think that the first step is finding the car you want to purchase, but that’s not the case. If you plan on financing your purchase, it’s important to secure approval for a car loan before you start shopping for a vehicle. This way, you will know that you qualify for a car loan. Getting pre-qualified in advance will also tell you how much you are able to borrow, which will make it easier to set a budget.
If you’ve never financed a car before, you may want to know more about the process from start to finish, including what you can do to secure approval for a loan. Fortunately, getting approved for a car loan isn’t hard, especially if you know what to do to boost your odds. Here’s a good start on getting what you need to know about how to get approved for a car loan:
How to Improve Your Chances of Getting Approved for a Car Loan
There are a number of things you can do to improve your chances of getting approved for a car loan, including:
● Check Your Credit Score
● Have a Reliable Source of Income
● Find Proof of Your Residence and Identity
● Make a Down Payment
● Trade In Your Current Vehicle
Check Your Credit Score
After you apply for a car loan, the lender will perform a credit check to evaluate your creditworthiness. In other words, your credit score can impact your eligibility for an auto loan. It can also impact the terms of the car loan you qualify for, including the APR and interest rate. The higher your credit score, the better your chances are at getting approved and securing favorable loan terms.
For these reasons, it’s important to check your credit score before you apply for a car loan. You don’t need a perfect credit score to get approved for a car loan, but if you want to secure the best possible terms, you may want to improve your score before submitting an application. Here’s what to do:
● Look for errors. If there are any errors on your credit report, contact the credit bureau right away to get them removed.
● Don’t open new lines of credit. If you’re planning on applying for a car loan, try to avoid opening new lines of credit, which will temporarily lower your score.
● Don’t miss any payments. Missing even a single payment will have a negative impact on your score.
● Pay down small debts. The more debt you can pay off before you apply for a car loan, the better. Doing this will lower your debt-to-income ratio (DTI), which is one of the many factors your lender will consider when determining your eligibility for a loan.
Have a Reliable Source of Income
To qualify for an auto loan, you must have a reliable source of income that you can use to repay the money you borrow. For this reason, your lender will ask you to submit proof of income during the application process.
If you are currently employed, you shouldn’t have a problem fulfilling this requirement since you can easily prove that you have a reliable source of income.
If you aren’t currently employed, you can improve your chances of getting approved by showing proof of another source of income. Some examples of other sources of income include:
● Disability benefits
● Veterans’ benefits
● Social Security benefits
● Alimony
● Rental property income
Talk to your lender to find out what documents you will need to submit to prove your income. Your lender may ask you to submit recent pay stubs, tax returns, or bank statements.
Find Proof of Your Residence and Identity
During the application process, the lender will also ask you to submit documents that serve as proof of your residence and your identity. If you want to get approved for a car loan in the near future, start gathering these documents now to avoid any unnecessary delays.
The best way to prove your identity is to show your driver’s license. If you don’t have a driver’s license, your lender may accept another government-issued ID as proof of identity.
Your lender will most likely accept your driver’s license as proof of residence as long as it has your current address listed. Lenders may also accept other forms of proof of residence, including recent utility bills, mortgage statements, or lease agreements.
Make a Down Payment
A down payment is the cash a borrower pays upfront to cover a portion of the cost of the vehicle. Some lenders will allow you to take out an auto loan without putting any money down. However, if you want to increase your chances of getting approved, it’s best to make a down payment.
The more you put down upfront, the less you will need to borrow from the lender to pay for your car. The less you need to borrow, the easier it is to get approved for an auto loan.
Furthermore, lenders tend to view borrowers who are making down payments as less risky than borrowers who are not. This is because borrowers who make down payments are less likely to default since they are using their own money, too.
For these reasons, you may want to start saving for a down payment now if you are concerned about getting approved for an auto loan.
Trade In Your Current Vehicle
You also have the option of trading in your current vehicle instead of making a down payment in cash. If you trade in your current vehicle, the value of your vehicle will act as a down payment, which means it will go toward the purchase of your new vehicle.
For example, say your current vehicle has a trade-in value of $10,000 and you want to purchase a new vehicle that costs $22,000. If you trade in your current vehicle, the $10,000 will be put toward the purchase of your new vehicle, which means you will only need to borrow $12,000 ($22,000-$10,000=$12,000).
How to Apply for a Car Loan
Now that you know how to get approved for a car loan, all you need to do is submit an application. Follow these steps to apply for a car loan from LoanCenter:
- Get pre-qualified. The first step is getting pre-qualified for an auto loan. To do this, you just need to provide some basic information about your residence, income, and employment. Your pre-qualification letter will tell you if you qualify for an auto loan and if so, how much you qualify to borrow.
- Customize your loan structure. Make sure your auto loan works for you by customizing your loan structure. For example, if you’re on a tight budget, you may want to extend the loan term to reduce your monthly payment.
- Add optional vehicle products. You have the option of adding extra vehicle products to your auto loan, including a GAP waiver, vehicle service contract with Powertrain Coverage or Advantage Coverage.
- Find a vehicle. Now that you’ve customized your loan, it’s time to find the perfect vehicle. Browse our inventory to search for vehicles that you qualify for based on your selections.
- Complete the transaction. Print or download your pre-qualification letter once you find a car you want to purchase. Then, head to the dealership so you can complete the transaction and drive off of the lot in your new car.
Don’t wait any longer to secure financing for your new car–submit an auto loan application today.
