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.

Step 1: Check your credit

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.

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 should take steps to improve your score to qualify for more competitive rates in the future.

_{Source: Experian’s State of the Automotive Finance Market Report, Q2 2020}

Step 2: Create a budget

Before you apply for a car loan or buy a vehicle, you’ll want to know what you can afford. Our auto loan calculator can help you determine what your monthly repayments would be based off your potential APR and loan term. For example, the total interest you pay on a $20,000 car loan — along with your monthly payment — can drastically change based on your loan term.

In addition to your monthly car payment, you’ll also want to account for upfront costs that come with buying a car like taxes, fees and your down payment — which should cover 20% of the vehicle’s value. If you can, avoid including taxes and registration fees into your loan. Paying for them out of pocket will help decrease the overall cost of buying a car.

Step 3: Get preapproval from multiple lenders

When you apply for 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. It should only count as one line on your credit report — provided you apply for preapproval with multiple lenders within a 14-day period.

A wide variety of lenders offer car loans, including:

• Large national banks like Bank of America and Chase
• Local banks and credit unions
• Online lenders
• National and local dealerships

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	Filter Values	Minimum credit score	APR	Loan term	Requirements
PenFed Auto Loans			Varies	Starting at 5.19%	3 to 7 years	Active membership with PenFed	One of the largest national credit unions in the U.S., it offers new and used auto financing with transparent low rates.	Go to site More Info	Compare	loading Fetching your data...
CarGurus			Varies	Varies depending on the lender	3 to 6 years	Varies depending on the lender	Go to site	Compare	loading Fetching your data...
Carvana			No minimum credit score	3.9% to 27.9%	1 to 6 years	18+ years old, annual income of $4,000+, no active bankruptcies	Get pre-qualified for used car financing and receive competitive, personalized rates.	Go to site More Info	Compare	loading Fetching your data...

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Step 4: Compare your preapproval offers

After you’ve collected a few preapproval offers, compare your options by looking at the following features:

• 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 under 10 years or 100,000 miles.

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

Going online is a great first step because it allows you to compare dealerships’ advertised options against sources like Edmunds and Kelley Blue Book. You’ll also be able to compare the dealership against the manufacturer — giving you access to the best potential deals.

Visit the dealership

Even if you already have a loan, apply for financing with the dealership. You’ll have the upper hand when it comes to negotiating interest, and if you aren’t interested in dealership financing, you’ll at least be able 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 lender’s instructions to finalize your loan.

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

1. Sent to you so you can pay the dealership
2. Sent directly to the dealership

If you opt for dealership financing, you’ll simply have to sign some paperwork to finalize your loan before driving off the lot.

Step 7: Plan for paying off your loan

Many lenders allow you to set up automatic repayments, sometimes with the added benefit of an interest rate discount. But if that’s not your style, you should also be able to make payments manually, either online or by check.

Whichever you choose, be sure you have enough to cover the amount due each month. A history of on-time payments can 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 it by a few points.

Bottom line

Checking your credit, creating a budget and getting preapproved with a few lenders can up your bargaining power when you hit the dealership. Learn more about how car loans work and compare lenders from our best car loans list.

Frequently asked questions

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 anywhere from two to four 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 your car loan, it has checked your credit report and score as well as other financial information to determine your eligibility. Because this involves a hard credit pull, you’ll get 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 only have to find the vehicle you want to purchase.

Prequalification doesn’t involve a hard credit check, 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 check, even if you’ve already started dealership negotiations.

How do I finalize my loan if I’m buying from a private seller?

You’ll need to contact your lender for instructions, but likely it will transfer your loan funds directly to your bank account so you can write a check or pay cash. However, remember that only some lenders offer loans for private sales. If you intend to buy a car privately, inform your lender at the preapproval stage.