How to get a car loan in 7 steps

Comparing car loans from different providers is one of the most important parts of the car-buying process. Taking the time to get preapproved can help you qualify for the most competitive rates and terms available to you. Follow these steps to learn how to get a car loan for your new set of wheels.

The 7 steps for how to get a car loan

1. Check your credit
2. Create a budget
3. Get preapproval from multiple lenders
4. Compare your preapproval offers
5. Shop for your car
6. Finalize your loan and receive your funds
7. Plan for paying off your loan

Step 1: Check your credit

The first step in how to get a car loan, is to check your credit score. Your credit score determines how much you can borrow and at what rate. Knowing your credit will help you understand when you’re getting a good deal — and when it’s best to find another lender. Discover how to check your credit score in our full guide here.

In general, a higher credit score will mean a lower rate. But lenders may also offer a lower APR for shorter loan terms or new car purchases. And if you have bad credit, you may want to take steps to improve your score to qualify for more competitive car loan rates in the future.

Step 2: Create a budget

When you’re considering how to get a car loan, it’s important to figure out exactly how much you can afford to pay towards a loan each month. Our auto loan calculator below can help you determine what your monthly repayments would be based on your potential APR and loan term.

Many experts agree that you should try to keep your loan term to 4 years (48 months) or less for that optimal balance between affordable monthly payments and not paying too much interest. For example, the total interest you pay on a $20,000 car loan — along with your monthly payment — can change drastically based on your loan term:

In addition to your monthly car payment, you’ll also want to account for the extra upfront costs that come with buying a car, including taxes, fees and your down payment.

Step 3: Get preapproval from multiple lenders

Car loans work differently than other types of personal loans. When you apply for car loan preapproval, your lender will confirm that you’re eligible to borrow a specific amount at an estimated rate. Then you’ll have 30 to 45 days to shop for the right car. Usually it will only count as one line on your credit report — provided you apply for preapproval with multiple lenders within a 14-day period.

After you’ve confirmed you qualify, gather the information and documents and start the preapproval application. You’ll generally need your personal, financial and employment details. While some might ask for information about the car you want to purchase, this isn’t always required.

Compare car loan providers

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Name	Product	APR	Loan Amount	Loan Term	Requirements	Long Table Description
CarsFast Car Loans CarsFast Car Loans		4.90% - 29.90%	$500 - $75,000	12 - 96 months	Requirements: Min. income of $2,000 /month, 3+ months employed		Go to site More Info	Compare	loading Fetching your data...
Loans Canada Car Loans Loans Canada Car Loans		2.00% - 46.96%	$500 - $35,000	3 - 60 months	Requirements: Min. income of $1,800 /month, 3+ months employed		Go to site More Info	Compare	loading Fetching your data...
Canada Auto Finance Canada Auto Finance		4.90% - 29.95%	$500 - $45,000	3 - 96 months	Requirements: Min. income of $1,500 /month, 3+ months employed		Go to site More Info	Compare	loading Fetching your data...
Ontario Clutch Car Loans Clutch Car Loans	Ontario	From 8.49%	$7,500 - No max.	12 - 96 months	Requirements: 3+ months employed, Max.1 bankruptcy, Ontario & Nova Scotia only		Go to site More Info	Compare	loading Fetching your data...

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Step 4: Compare your preapproval offers

One of the most important steps when considering how to get a car loan is to carefully compare your preapproval offers after you’ve collected a few. Here are the key car loan features you should compare between offers:

• Loan amount. If a lender is unable to offer you a loan that covers the anticipated cost of your car, you may want to cross it off your list.
• APR. Loans with a lower APR tend to cost less, but you’ll still want to account for how much you can actually borrow and the loan term before settling on the lender with the lowest APR.
• Loan term. The length of your loan will have a big impact on how much you actually end up spending. While shorter terms will mean larger monthly payments, you may end up saving thousands in interest over the course of your loan.
• Restrictions. Take note of any restrictions your lender has on how you use your loan. For instance, many lenders only accept used cars that are less than 10 years old.

Step 5: Shop for your car

After you’ve calculated how much you can spend and have a few loans to choose from, it’s time to shop for your car.

Search online

Shopping for a car online is a great first step because it allows you to compare dealerships’ advertised options against sources like Canadian Black Book, Auto Trader Canada, and Kijiji. You’ll also be able to compare what the dealership charges against other offers — giving you access to the best potential deals.

Visit the dealership

Even if you already have a car loan preapproval, apply for financing with the dealership. You’ll have the upper hand when it comes to negotiating interest since you can compare any dealership offers with what you were preapproved for online. And if you aren’t interested in dealership financing, you’ll at least be able to to skip some of the sales pitches. This means more time to negotiate the car’s actual price rather than just the potential monthly payments.

Step 6: Finalize your loan and receive your funds

Whether you choose to accept the dealership’s offer or simply go with the loan you’ve already been preapproved for, you’ll need to follow the instructions you’re given for how to get a car loan with that specific lender.

If you opt for financing from a third-party lender, your loan funds will be transferred in one of two ways:

• Sent to you so you can pay the dealership
• Sent directly to the dealership

If you opt for dealership financing, you’ll simply have to sign some paperwork to finalize your loan.

How to review and understand your car loan agreement

Step 7: Plan for paying off your loan

This is the most important step after you’ve figured out how to get a car loan. Many lenders allow you to set up automatic repayments But if that’s not your style, you should also be able to make payments manually, either online or by cheque.

Whichever you choose, be sure you have enough to cover the amount due each month. A history of on-time payments will build your credit score — giving you access to better terms if you decide to refinance your car loan in the future – while missing even one can lower your credit score by a few points.

Bottom line

Following the these seven steps for how to get a car loan will help ensure you lock in a good deal on one of the biggest purchases you’re likely to make. Checking your credit, creating a budget and getting preapproved with a few lenders can up your bargaining power when you hit the dealership. You can learn more about how car loans work and compare other lenders in our full guide here.

Frequently asked questions about how to get a car loan

• How long does it take to buy a car?

  It depends on you. Technically, it can take as little as one day if you know the car you want and choose dealership financing. But realistically, the car-buying process may take a few weeks if you take your time comparing loans and picking out your car.

• What's the difference between preapproval and prequalification?

  When a lender preapproves you for a car loan, it has checked your credit report and score as well as other financial information to determine your eligibility. Because this usually involves a hard credit inquiry, you’ll be given specific information on how much you can spend and how much it will cost you to buy a car. Barring unforeseen circumstances, you’re ready to buy a car when you have preapproval — you just have to find the vehicle you want to purchase.

  Prequalification doesn’t involve a hard credit inquiry, so the rate you’re offered may change based off your actual credit and the car you want to buy. It isn’t a guarantee that you’ve been approved, which means you may not receive the loan once the lender runs a hard credit inquiry, even if you’ve already started dealership negotiations.

• How can I finalize my loan if I'm buying from a private seller?

  You’ll need to contact your lender for instructions, but it will likely transfer your loan funds directly to your bank account so you can write a cheque or pay in cash. However, when considering how to get a car loan to finance buying a car from an individual instead of a dealership, keep in mind that not all lenders offer car loans for private sales. So if you intend to buy a car privately, make sure to inform your lender when you apply for preapproval.