In general, the most important factors on any loan application are your credit and income. But you’ll also need to think about the vehicle you want to buy, the down payment and more before you apply. If you can’t qualify on your own, take some steps to up your chances of approval.
What are the requirements to get a car loan?
Most lenders require some or all of the following criteria to get approved for a car loan:
The credit score you need to get a car loan depends on which lender you apply with. While there are car loans available to all credit types, you’re more likely to get approved with at least good credit — that’s a 670 credit score or higher.
If you have a 600 or even 500 credit score, it’s still possible to get a car loan. But you’ll have less of a selection and higher rates.
You can’t get a car loan without showing that your income can support the monthly repayments. Some require you to work full time, while others accept part-time work or government benefits. And you’ll need at least one of the following documents as proof:
Most recent pay stub
Social Security or government benefits statement
Most recent tax return
If you’re self-employed, there’s a chance you’ll need to submit more documents to prove your income — if you can qualify at all.
Low DTI ratio
Lenders generally look for a debt-to-income ratio (DTI) under 43%. This means your monthly debt payments and bills are less than 43% of your monthly income before taxes.
While lenders often don’t advertise this as a requirement, most consider it and have maximum DTI criteria for all applicants.
Your lender might have limits on what model and make they’ll finance. If you’re buying a used car, you’ll have to also meet mileage and vehicle age requirements.
Usually, the vehicle can’t have more than 100,000 miles or be more than 10 years old, though it varies by lender.
Federal law requirers lenders to verify your identity by checking a government-issued ID. Typically, they’ll ask for a driver’s license, permit or non-driver ID card issued by the DMV. Or, you may be able to use a passport or other ID that your local government issues.
Resident of eligible state
Using a passport or other ID that doesn’t include your address? Lenders generally ask to see proof of address, like a utility bill, to verify that you live in an eligible state.
Working phone number
Most lenders require you to provide a phone number on the application as a required field. Like the DTI, you won’t find this in most eligibility requirement lists.
But you generally can’t even fill out a prequalification form without a phone number — let alone the application. Lenders like to use this to get in touch if necessary. Not having a phone number also looks like a lack of stability to a lender, which would likely disqualify you from a loan.
While not common, some lenders ask for the name and contact information of people who can vouch for your trustworthiness. There may be restrictions on who you can choose — sometimes family members aren’t allowed.
Down payment or trade-in
While it’s possible to finance 100% of your new car, many lenders require a down payment. These usually start at around 10%, though you’ll generally get a better deal with a down payment of 20% or higher.
What else do lenders consider?
In addition to hard eligibility requirements, the following factors can also play into your application:
Where you’re buying the car. Generally, lenders favor cars bought directly from a dealership. Many won’t allow private-party purchases, and those that do often charge higher rates.
New vs. used. Used car loans tend to come with higher rates than financing a new car.
Loan amount and term. Credit unions in particular offer different ranges of interest rates depending on your loan amount and term.
General credit profile. In addition to your credit score, lenders consider factors like how much debt you have in your name and the length of your credit history.
6 ways to increase your chances of getting a car loan
Even if you think you’ll qualify, these steps can increase your odds of getting a good deal:
Check your credit score. Knowing your credit score can help you compare lenders by eliminating those that you won’t qualify with.
Check your credit report. Look for mistakes that might be affecting your score — and contact your creditors if you find any.
Shop around. You can apply for multiple car loans without majorly hurting your credit, as long as you keep your applications to a 14-day window. Credit bureaus treat this as rate shopping and only count one hard inquiry on your credit report.
Get preapproved. Getting preapproved with several lenders can help you make a more accurate comparison of rates without fully committing to the loan.
Save up for a big down payment. The more you can put down, the less you’ll need to borrow. Smaller loans are often easier to qualify for — and lenders like to see you have some skin in the game.
Apply with a cosigner or coapplicant. If you’re missing a key requirement, look for a lender that accepts cosigners or coapplicants to make up for that shortcoming.
Is it easier to get approved for a personal loan?
Not necessarily. Personal loans usually don’t require collateral, which is more of a risk to the lender. That’s one of the reasons why they tend to have higher rates and shorter terms than your typical car loan. While you can use a personal loan to buy a car, it might not be your best option.
Most lenders want to see that you have good credit, low debts and the income to pay off a loan. Generally, you need to show that you’re financially stable enough to make your repayments on time. Check our guide to auto financing to find a car loan to apply for today.
Frequently asked questions
Not necessarily, though it depends on the lender. But since most car loans are secured, they’re easier to qualify for than an unsecured loan — like a personal loan.
It might, though it depends on the dealership. Many are satisfied with proof of income, like a pay stub or bank statement.
No, you need to provide proof of income to back up the number you write on the application. If you don’t meet a lender’s income requirements, you might want to rethink getting a car loan in the first place. You’re setting yourself up to miss repayments, which can damage your credit, get your car repossessed and dig you deeper into debt.
Anna Serio is a trusted lending expert and certified Commercial Loan Officer who's published more than 1,000 articles on Finder to help Americans strengthen their financial literacy. A former editor of a newspaper in Beirut, Anna writes about personal, student, business and car loans. Today, digital publications like Business Insider, CNBC and the Simple Dollar feature her professional commentary, and she earned an Expert Contributor in Finance badge from review site Best Company in 2020.
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