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How to apply for online car loans
Find out how to apply online for a car loan and compare lenders.
Applying for a car loan online allows you to compare lenders and speed through the application process. But to avoid hurting your credit score, only submit a full application to the lender you’re most interested in.
What do I need to know before I apply?
Before you apply, you need to know how much you can afford to borrow and what type of car you’re looking to finance. You can use our monthly payment calculator to find out how much you have to put forward month-to-month.
If you’re qualified, lenders can pre-approve you for a loan. Pre-approvals often last for up to 30 to 60 days, though you will want to verify this with your lender. Getting pre-approved will give you time to search for a car and solidify your choice before committing to a loan and starting payments. Once your decision is made, you can often have the funds deposited into your account by the next business day.
How do I apply online for a car loan?
To apply for a car loan online:
- Fill out the online application. This will likely include giving the lender information about yourself, your finances, your credit and the car or loan amount you’re interested in. Be honest and make sure you provide accurate answers to avoid any trouble later on.
- Gather supporting documentation. You may be able to upload your documentation directly to the loan application, or you may need to fax or email them in.
- Wait for the lender’s decision. Once you’ve submitted your application and supporting documents, your lender will either notify you of its decision or ask for further information. In many cases, lenders can give you approval or preapproval almost instantly after submitting an application while supporting documents and other requested information are still pending.
- Review and sign the contract. If approved, your lender will send you a loan contract for review. This contract contains vital information including your loan term, repayment schedule and interest rate, so take your time reviewing it. After reviewing, if you’re comfortable with the terms, you’ll sign the contract and return it to your lender, who will then distribute the funds to the vehicle seller.
How does online car loan approval work?
Being approved for a loan online is much like being approved for a loan when you visit the physical location of a lender. You provide the necessary information and then wait to see if you’ve been approved.
After the lender agrees to finance your loan, it’s time to walk into a dealership and start negotiating for a car. You’ll already know how much you can borrow and the interest you’ll have to pay, which will help you eliminate options and find the right car faster. You can also use your car loan offer to negotiate a better offer with the dealership – just remember that each loan application may require a hard pull on your credit which can temporarily damage your credit score. So don’t solicit too many offers at once.
What information do I need to apply for a car loan online?
The information and documentation you need to complete the application will vary by lender. But in general, you should have the following on hand:
- Personal information. This includes information such as your driver’s license number, contact information, income and residential status.
- Employment information. This includes details regarding your employment history to help your lender assess your stability as an applicant.
- Requested loan details. You’ll need to provide your requested loan amount along with your preferred method of repayment.
- Driver’s license or certified ID. Your driver’s license or other valid identification is used as proof of your current address and to help your lender conduct a credit check. If your credit history is an obstacle, it’s possible to get apply for a no credit check car loan, but this also has its drawbacks.
- Proof of income. These include bank statements, pay stubs, financial statements, rental income statements or anything else serving as proof of the income declared on your application.
- Proof of insurance. Depending on the lender, you may be required to provide proof of insurance on the car you plan to purchase.
- Vehicle details. Some lenders may ask you for information about the vehicle you’re planning to buy — including the make and model — as well as the seller’s asking price, name of business and address.
Compare a range of online car loans
How to compare online car loans
Car loans are offered by banks, credit unions and independent lenders. With so many options on the market, it can be hard to know which one to choose or where to start. Review these tips to help you find a loan that suits your individual needs.
- Application process. Some lenders have systems that can analyze your application quickly and provide an answer in very little time, sometimes immediately. Others might make you wait longer.
- Down payment. The amount of your down payment can impact the interest rates a lender will give you as well as the term of your loan. So the bigger your down payment, the better. You can also use a trade-in car to help decrease the amount of money you will need to borrow for your next vehicle.
- Total cost. The total cost of a loan – both interest and fees – is reflected in the APR (Annual Percentage Rate). If you compare two loans for the same principal amount, look at their interest rates and APRs to determine which one will cost you less in the long-run.
- Documents needed. Will you need to fax a copy of your auto insurance or your driver’s license? Can these things be verified online and save you time? These factors should help you determine which lender you’d prefer to go with.
- Dealership connections. If you’ve decided to go through a car loan connection service, research the dealers it partners with to make sure you’ve found a reputable business that you’re comfortable forming a relationship with.
Pros and cons of applying for an online car loan
- Quick process. Many lenders can come to a decision on the same day you apply and, in some cases, you can get funds disbursed in as little as one day.
- More options to choose from. You’re not restricted to just banks or credit unions when applying for a car loan online, giving you a wider selection of lenders to choose from.
- Easy comparison. The best part of shopping is comparing your rates. With online applications, you can compare rates from multiple lenders with the click of a few buttons.
- Convenience. Applying for a car loan online is usually more convenient than having to apply in person at a dealership or bank.
- Simplified negotiation. You won’t go into a dealership unsure of how much you can afford when you have an online loan. This makes negotiating the price simpler since you’ll know exactly how much you can pay for a car.
- Easy to over-apply. Lenders may deny your application if they see you’ve been applying for too many loans within a short period of time. Doing this also lowers your credit score.
- Short pre-approval window. Keep in mind that any preapproval you get from a lender will likely expire in 30 days.
- May come across shady lenders. When considering your online car loan options, it’s easy to come across a lender you’re not familiar with. Research the lender’s website security, business practices and borrower reviews to make sure it’s legit before applying.
- High rates for bad credit. If you have bad credit, an online lender may not offer you low rates because you are perceived as higher risk. See what type of financing your dealer has to offer before settling on an online loan. It doesn’t hurt to check whether they could give you a better deal.
What to consider before agreeing to the loan
- Fees and taxes. Generally, the price your dealership asks for doesn’t include costs like sales taxes and registration fees. Make sure you consider these costs before deciding how much you need to borrow in order to buy your car.
- Balloon payments. Some car loans come with low repayments for several months and then one large balloon repayment at the end. Make sure you’ll be able to comfortably afford this arrangement in order to avoid having to refinance and extend your loan payments.
- All financing options. Getting a car loan online is easy, but you might also want to consider what your dealership has to offer and even consider getting a personal loan to make sure you’re getting the best deal for you.
What should I avoid?
When applying for any car loan — online or in person — try to avoid the following:
- Getting into too much debt. Since car loans involve a lengthy financial commitment, make sure you can afford the repayments required by your lender.
- Getting mixed up with shady sellers. Avoid any seller that tells you to falsify information on your loan application. Not only is it illegal, but you carry all the risk while the seller carries none. In addition, make sure you’re fully aware of the car’s condition before buying it. Have any used car you’re interested in inspected by a mechanic not connected to the seller.
According to a recent Finder survey of 1,011 Canadians, 15% plan to take out a car loan in the second quarter of 2023. While most Canadians still prefer to shop in-person for a new or used car, a larger percentage of car buyers are turning to online options.
Part of the appeal of online car shopping is how easy it can be to research, find, negotiate and purchase a new or used vehicle. The same applies to online car loans. While, applying for a car loan online is easy that doesn’t mean it’s a good idea to apply for multiple loans at once. Instead, compare your options before getting started, know the best options for what you want and only apply to the lenders that best fit your needs.
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