How to Finance a Car: A 4-Step Guide to Getting an Auto Loan

Get Car Financing
Even with poor credit.

By

Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - July 18, 2018

Financing a car can be exciting and scary, especially if it’s you first time getting a car loan. But, with a little auto loan research on CarsDirect, you could be going into your first car loan with the confidence and knowledge to stay ahead of the game.

Step 1: Credit is the Key to Financing

Perhaps the most important part of getting an auto loan is to know where you credit stands. You should never just take someone’s word as to what your credit score is. Being an informed consumer goes a long way toward getting the best deal you can on a car loan. Whether your credit is good or bad, you should typically be able to find an auto loan, as long as you’re working with the right lenders.

Before you start looking for a car, get a copy of your credit reports and score. You can receive a free copy of your credit report from each of the three national credit bureaus – Experian, TransUnion, and Equifax – every 12 months by visiting annualcreditreport.com. For a small fee, you can get your credit score there, as well.

Tip: Regularly monitor your credit reports to ensure accuracy. Any misinformation could be dragging down your score unnecessarily. To have errors corrected, contact the reporting credit bureau and submit a dispute.

Step 2: Researching an Auto Loan

Now that you know what your credit looks like, get online and research typical interest rates for your score. These estimates may not be an exact match for the rate you’ll be offered, but having an idea of what’s typically available in your credit situation helps you know if you’re being offered a fair rate, and gives you some negotiating power if you’re not.

Know that the lower your credit score is, the higher your interest rate is likely to be. In addition, the longer your loan term, the more you end up paying in interest charges.

Tip: The best way to approach a loan is to pay the most you can afford each month, for the shortest amount of time possible. An easy way to do this is to make extra loan payments or pay more each month whenever possible.

Step 3: Set Up a Budget for Your Car Loan

Auto loans are about more than the selling price of the car. There are things like fuel, maintenance, and insurance costs to consider, as well as tax, title, license, and dealer fees. A lender considers your income first to qualify you for the auto loan, then to calculate if your income is enough for the combined car and insurance payment. Lenders want you to be able to afford your new vehicle and successfully pay back your loan. It’s just as big of a hassle for them if you default.

It’s important to balance the overall cost along with the monthly payment when you finance. Focusing on just one could get you in over your head financially. Know your limits on price range by using a loan estimator to see what you might be able to get financed for, and calculate your debt to income (DTI) and payment to income (PTI) ratios so you’ll know about what your monthly payment range should be. Lenders typically don’t want your combined loan and insurance payments to top 15 to 20 percent of your income before taxes. The percentage of your income used by this payment is known as your PTI.

TIP: If your current bills already take up more than half of your income, a lender may not be able to approve you for financing. Make sure you do the math and know your DTI and PTI before sitting down with a dealer or lender.

Step 4: Visit the Right Dealer for Your Needs

When you have good credit, you can usually go into any dealership, pick out a car and get financing – or you can visit a bank or credit union first to get pre-approved (which is always the best idea, if possible). If your credit is suffering, you typically need to visit a special finance dealership that has subprime lenders that look beyond credit to get you approved.

Though the basic car loan requirements vary by lender, in order to help with the approval process if you have bad credit, these lenders typically look for:

  • Proof of income – You generally need to make $1,500 to $2,000 a month before taxes from one job, with a paycheck stub to prove it.
  • Proof of residence – Provide a current utility bill, in your name at the address listed on the application.
  • Proof of a working telephone – A landline or contract cell phone from a national carrier in your name. Prepaid phones won’t cut it.
  • References – Six to eight complete personal references with names, addresses, and phone numbers (none living at your address).

Tip: Not all dealers have the ability to work with people who have credit challenges. Be sure you’re not putting added stress on yourself and your credit by blindly visiting every dealership hoping they can help.

CarsDirect Wants to Help You Start on the Right Path

We know how difficult it can be to find financing if your credit isn’t the best, or if you don’t have any because it’s your first car buying experience. CarsDirect works with a nationwide network of dealerships that have the lenders available to help people in a wide range of credit situations, including bad credit, no credit, and even bankruptcy.

Let us help connect you to a local dealer. The process is free of charge, and there’s never any obligation to buy. What have you got to lose? Simply fill out our online auto loan request form and we’ll get to work finding a dealership in your area that has the resources you need!

Need a Car Loan?

It only takes a minute.

Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


Search New Cars by Loan Payment »

View estimated loan payments based on local rebates and financing offers.

Loan approval is not guaranteed and is subject to credit application and approval of the lender. Individual loan terms may vary. Use of this website constitutes acceptance of CarsDirect.com's Terms of Use, Disclaimer, Privacy Policy, and Cookie Policy.