How Do I Get a Car Loan?

by Driving Guide | Last Updated: January 11, 2021

Shopping for a new car can be an exciting experience. On the other hand, it can be a time of frustration if you haven’t done your research. Below are some helpful tips and information about getting an auto loan without a lender or dealership taking advantage of you.

Start With Your Credit Score

When determining your rate for a loan, the key element is your credit score; the higher your score, the lower your interest rate. Your credit score is obtained from the information contained on your credit reports. There are three reporting agencies, Experian, TransUnion, and Equifax, and the credit reports can vary between them.

Here is a simple classification of credit scores:

Excellent credit: 740 to 850
Good credit: 680 to 740
Acceptable credit: 620 to 680
Subprime credit: 550 to 620
Poor credit: 300 to 550

Let’s Go Shopping!

When you have determined the amount you want to spend on a car, the next step is to look for a lender. Traditionally, auto loans are offered through, banks, credit unions, dealerships or other financial institutions.

When applying for an auto loan, you must be prepared to provide the lender information including your name, address, date of birth, Social Security number as well as your current employment status.

Know Before You Go

Getting pre-approval for a loan before heading to the dealership is like knowing the answers before taking a test. Knowing how much pre-approval money you have gives you the confidence needed to secure a good deal.

Online loan providers are another option for pre-approval. These services allow banks and other institutions to contend for your business, ensuring you get the most ideal arrangement. You don’t need excellent credit to get pre-approved, but you may pay a higher interest rate contingent on your credit score.

Get the Best Deal by Choosing the Right Vehicle

Selecting the appropriate vehicle is just as imperative as securing a good deal. There are numerous components to consider when it comes to selecting the right vehicle, and we’re not simply talking about an awesome sound system and a fancy paint job.

A few significant considerations include:

How economical is the car to operate? What gas mileage can you expect? Is the car hybrid or electric?
What is the maintenance reputation of the manufacturer? Does the particular make and model have a history of expensive repairs?
Is the car the right size to meet your needs? Can you get all of the kids in there at once?
What will happen to your insurance budget? Will your rate increase or decrease with your chosen car and, if so, by how much?

Get Your Deal Done

Once you have settled on a vehicle and negotiated a fair price, now’s the time to close the deal. If you are working with a dealer, this is the time when the dealer might try to upsell you on certain add-ons, for example, an extended warranty, security system or even window tinting. In many circumstances, these amenities can be found elsewhere at a much better value or may be entirely unnecessary, so it’s imperative to do your research and go in fully prepared.