How to Get Financing Before Buying a Car

Financing a car purchase can be a daunting task, but it doesn't have to be. Knowing your credit score is key, as it can affect the interest rate you're offered. A good credit score can save you thousands of dollars in interest payments over the life of the loan.

Check your credit report for errors and dispute any inaccuracies. This can help improve your credit score and give you a better chance of getting approved for a loan. The average credit score for a car loan is around 680, but this can vary depending on the lender.

Having a stable income and a solid employment history can also help you qualify for a loan. Lenders want to see that you have a steady income and a history of making on-time payments. This can give you a better chance of getting approved for a loan with a good interest rate.

To get pre-approved for a loan, you can shop around and compare rates from different lenders. This can help you find the best deal and save money on your car purchase.

Before you visit the dealership, get a copy of your credit report from AnnualCreditReport.com or call 1-877-322-8228. This will give you an idea of your credit score and history, which affects whether you can get a loan and how much you'll have to pay in interest.

Get an "out-the-door" price of the car in writing before you visit the lot, including taxes and fees. This will help you compare offers from different dealers and catch extra charges that may slip into your deal.

Consider saving for a down payment first, as it reduces the amount you need to finance or lease, lowering your total financing or leasing costs.

To determine your budget for a new car, consider how your loan will fit into your monthly expenses. You can use Experian's car payment calculator to compare estimated loan offers based on the loan's interest rate and repayment term.

The average loan amounts for new cars are $39,172 for super prime credit scores, while for used cars, the average loan amount is $28,079. Consider how increasing the repayment term might lower your monthly payment but will also increase how much you repay overall.

You'll also want to consider your down payment and whether you'll have money from selling or trading in a vehicle. A down payment can reduce the amount you need to finance or lease, lowering your total financing or leasing costs.

Here are some average loan terms for new and used cars based on credit score ranges:

Keep in mind that auto lenders typically like to see a debt-to-income ratio (DTI) below 50%.

Before you start shopping for a car, it's essential to know what you need to bring to the table. You'll need to provide proof of identity, which can be a driver's license, passport, or other government-issued photo ID.

To get approved for a car loan, you'll also need to show proof of income. This can be current pay stubs, bank statements, W-2s, 1099s, or even your most recent two years of income tax returns if you're self-employed.

Having insurance is a must, and you'll need to provide proof that you have insured the vehicle before driving it off the lot. A quick call to your insurance company can get you an insurance binder to take care of this.

You'll also need to provide proof of residence, which can be a driver's license, utility bills, mortgage or lease statements, or bank statements.

Here are the specific documents you'll need to finance a car:

Don't forget to have trade-in paperwork, discount eligibility, and payment ready. If you're trading in a used car, have the current registration handy. If you own the vehicle free and clear, you'll need the title, and if you have a loan on the vehicle, bring the most up-to-date loan documentation with you.

Getting prequalified or preapproved for a car loan can be a great way to get an idea of how much you can borrow and what your monthly payments will be. You can get prequalified or preapproved with most auto lenders, and some even offer both options.

Prequalifying involves completing a preliminary application to see if you're likely to get approved and receive estimated loan offers. This process usually doesn't require a hard credit check, so it won't affect your credit scores. You'll typically need to provide your estimated income and monthly loan payments.

Preapproval, on the other hand, involves a more in-depth application process that may require submitting documents to verify your income and credit. This can result in a hard credit inquiry, which may slightly impact your credit score. However, preapproval can provide more accurate estimated loan offers.

Here's a comparison of prequalification and preapproval:

It's a good idea to get prequalified or preapproved with multiple lenders to compare their offers and find the best one for you. You can usually apply online, over the phone, or in person, and some lenders may offer better rates if you already have a relationship with them.

Preapproved offers are typically good for 30 to 60 days, so be sure to review them carefully and consider whether you want to decline them if the dealer can beat the offer.

Applying for financing is an essential step in buying a car, and it's best to do it before visiting a dealership. You can start by getting preapproved for a car loan.

To get preapproved, you can apply online, over the phone, or in person at a bank or credit union. Banks and credit unions are more likely to offer auto loan preapproval, and you can typically get a better rate if you already have a relationship with them.

Applying for preapproval will have an impact on your credit score, so it's best to wait until you're serious about buying a car and know your credit score. Some lenders may even provide you with a check worth up to the preapproved amount, so you can take it to almost any dealership and pay for your car just like you would with cash.

You'll need to provide some information to get preapproved, including your housing, employment, income, and contact information, as well as the amount you expect to finance and trade-in information if you have a trade-in.

Here are some options to consider when applying for financing:

Applying with a creditworthy cosigner can also help you qualify for a larger loan or lower interest rate. However, make sure they understand how cosigning can impact their credit.

You can shop like a cash buyer when you walk in the door armed with a preapproval, giving you more power to negotiate and potentially saving you serious money.

Get an "out-the-door" price of the car in writing before you visit the lot, including taxes and fees, to compare offers from different dealers on an apples-to-apples basis.

This will help you catch extra charges and add-ons that may slip into your deal, keeping your attention on the total cost, not just the monthly payment.

Here are some tips to help you compare offers:

Research the trade-in value of your old car by checking the National Automobile Dealers Association's (NADA) Guides, Edmunds, and Kelley Blue Book. This information can help you negotiate a better price from the dealer.

It's essential to wait until after you've negotiated the best possible price for your new car to discuss the possibility of a trade-in. This way, the seller can't adjust the sales price to make up for a generous trade-in offer.

If you still owe money on your old car, trading it in might not help much. You'll need to ask the dealer how the negative equity will affect your new financing or lease agreement.

To avoid surprises, make sure you ask the dealer about the following:

To compare offers, get an "out-the-door" price of the car in writing before you visit the lot, and before you talk financing with the dealer. This will help you compare offers from different dealers on an apples-to-apples basis, more easily catch extra charges and add-ons that may slip into your deal, and keep your attention on the total cost.

Don't focus solely on your monthly payment. Low monthly payment offers can be tempting, but they often require longer terms and higher interest rates, which will substantially increase your overall cost.

To make comparisons easier, use the Make a Budget worksheet as a guide to ensure you have enough income to cover your monthly expenses and a car payment.

Here's a simple table to help you compare offers:

Remember, the lower the interest rate, the less you'll pay overall. Getting preapproved from a trusted financial institution can provide you with a lower interest rate than what a dealer can offer.

Now that you have an estimate of how much you can spend, it's time to choose a vehicle. Choose the make and model of the car you want, considering whether you want the most recent year or a car from a prior year, which is generally cheaper.

Shop around to compare offers from different dealers. Consider online and word-of-mouth reviews, location, rebates, and incentives when choosing a dealership.

Armed with a preapproval, you have the upper hand in negotiations, just like a cash buyer. This means you can shop with more power and potentially save serious money.

Having an estimated loan offer in hand allows you to shop for a vehicle knowing your budget. Choose the make and model you want, and consider whether a newer or older model is right for you.

Comparing dealerships is crucial to finding the best price. Look for online and word-of-mouth reviews, consider the location, and check for rebates and incentives.

Knowing your maximum price gives you the ability to negotiate price, not just payments. This can help you avoid longer terms and higher interest rates, ultimately saving you money.

Finalizing the loan process can be a bit of a challenge, but it's essential to get it right. You may need to provide updated or additional documentation to verify your identity, income, and address, such as copies of a government ID, pay stub, and utility bill.

The lender may also request copies of the purchase agreement and proof of insurance. This is a standard part of the process, so don't be alarmed if they ask for these documents.

If you're prequalified or preapproved, you'll receive a loan agreement detailing the terms and conditions of the contract. Review this agreement carefully, as it outlines the interest rate, loan amount, and repayment terms.

If you don't get prequalified or preapproved, you might have trouble getting an auto loan. You could try working on your credit or trying to get approved for a lower loan amount by increasing your down payment or buying a less-expensive vehicle.

If you're approved, you'll likely receive a check to use at the dealership or the lender will pay the dealer directly. Either way, make sure you understand the terms of the loan and what you're committing to.

Here are some key things to consider when finalizing your loan:

Getting preapproved for a car loan is a straightforward process that can give you a better idea of your financial situation and help you shop for a car with confidence. You'll need to provide personal information, such as your name, date of birth, contact information, and Social Security number.

To get started, you'll need to have your housing, employment, income, and contact information ready. This includes your address, how long you've lived there, whether you rent or own, and your monthly housing payment. You'll also need to know your income and employment status, as well as your employer's name if applicable.

Preapproval applications are usually available on the lender's website, and some lenders may require more information than others. You'll typically need to submit your loan details, including how much and how long you want to finance. You may also need to provide trade-in information, such as the title and registration of your vehicle.

Here's a breakdown of what you'll need to get preapproved for a car loan:

Preapproved offers are typically good for 30 to 60 days, and you can always decline your preapproved offer if the dealer can beat it. It's also a good idea to wait until you're serious about buying a car and know your credit score before applying, as it may have an impact on your score.