To get a car loan, you primarily need a solid credit history, verifiable income and employment, a down payment, and a valid form of identification. Lenders use these to assess your ability to repay the debt. A higher credit score and a larger down payment generally secure you a lower interest rate, saving you money over the life of the loan.
The most critical document is proof of a steady income, which assures the lender you can make the monthly payments. This typically means recent pay stubs, W-2 forms, or tax returns if you're self-employed. They will also check your credit score, which is a numerical representation of your creditworthiness based on your history with debts like credit cards and previous loans.
Your Debt-to-Income ratio (DTI) is another key factor. This is your total monthly debt payments divided by your gross monthly income. Lenders prefer a DTI below 36%, as it indicates you aren't overextended. A down payment, often 10-20% of the car's price, reduces the lender's risk and the amount you need to finance.
Finally, you'll need personal details like a valid driver's license, proof of insurance, and the vehicle's information, including the VIN (Vehicle Identification Number) and purchase agreement.
Here’s a quick reference for how credit scores typically affect loan terms:
| Credit Score Tier | Typical APR Range (New Car) | Loan Approval Likelihood | Recommended Down Payment |
|---|
| 781-850 (Excellent) | 3.5% - 5.5% | Very High | 10% |
| 661-780 (Good) | 5.5% - 8.5% | High | 15% |
| 601-660 (Fair) | 8.5% - 13.5% | Moderate | 20% |
| 501-600 (Poor) | 13.5% - 18.5% | Low | 20%+ |
| Below 500 (Very Poor) | 18.5%+ | Very Low | Significant |
Before you apply, it's wise to check your own credit report for errors and get pre-approved from a bank or credit union. This gives you a budget and negotiating power at the dealership.
