How to Get Your First Car Loan

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Even with poor credit.


Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.

, - June 19, 2019

Getting your first car can be exciting and scary all at once. This is a big purchase you’re about to make, and if you’ve never bought anything this expensive, you may be wondering where to even start. On top of that, if you’re still new to the credit world and don’t have great credit yet, the car buying process is a little different.

Step 1: Know Your Credit

The very first thing you need to do when car shopping is know exactly where your credit stands. You should check your FICO score either through your bank, credit union, or credit card provider, or by going to and paying a fee.

After that, check what’s on your credit reports. You can get a complimentary copy once every 12 months from each of the three major credit bureaus – Equifax, TransUnion, and Experian – by going to Look over everything listed, and make sure nothing is incorrect. If any negative information is, make sure you dispute it immediately to the reporting credit bureau.

Step 2: Budget

The next step is to come up with a reasonable budget. Our auto loan calculator can give you an estimate of how much of a loan you need, which gives you a better idea for vehicles that fit your budget. Our calculator asks that you have a desired monthly payment, and you can calculate your payment to income (PTI) ratio to figure this out.

Your PTI ratio determines what your maximum car payment should be. To calculate this, multiply your monthly pre-tax income by 0.15, and then again by 0.20. This gives you a maximum payment range that subprime lenders typically set.

What you need to keep in mind is that your new vehicle and insurance costs affect your debt to income (DTI) ratio, too. Your DTI ratio focuses on your total monthly expenses and compares it to your monthly pre-tax monthly.

To find your DTI ratio, add up all your monthly bills (including your new estimated auto insurance and car loan payments) and divide that amount by your pre-tax income. Make sure it's no more than 45 to 50%, which is what bad credit lenders usually set as the maximum.

Step 3: Research Vehicles

Now that you have a budget, it’s time to pick out a vehicle. At CarsDirect, you can view, search, and compare different models with our used and new car search features. Make sure you choose a vehicle that’s going to fit your everyday needs, and don’t pick something unconventional.

If you’re a Millennial and/or a first-time car buyer, QuoteWizard determined that these were the 10 most popular vehicles purchased by these buyers:

  1. Honda Accord
  2. Nissan Altima
  3. Honda Civic
  4. Toyota Camry
  5. Hyundai Sonata
  6. Chevrolet Impala
  7. Ford F-150
  8. Toyota Corolla
  9. Ford Focus
  10. Jeep Grand Cherokee

Each of these cars has excellent reliability and safety ratings, and comes at a decent price for new models. Their used counterparts are just as reliable, and come at cheaper price points, which can really help you out in the long run if you have bad credit.

Step 4: Try for Pre-Approval

From there, you should try and get pre-approved for auto financing at your local bank or credit union. Even if you have bad credit, you may still be able to get pre-approved. Just what your bank or credit union can offer you depends on what their requirements are, and your relationship with them.

You may not have great credit, but if you’ve been consistent with on-time payments and can prove to them you can handle a car loan, they may pre-approve you. You aren’t going to know unless you try!

Step 5: Gather Documents

If your bank or credit union couldn’t approve you, your next step is to find a special finance dealer that works with subprime lenders (we can help you with this, as we’ll explain later). Subprime lenders work with car buyers that have poor or little credit, and although they check your credit, they consider outside factors such as income, residence stability, and down payment.

You need to bring in some documents, because they’re going to ask you to prove you’re able to handle an auto loan. Here’s what you should bring with you:

  • Proof of income – A computer-generated pay stub showing year-to-date earnings from the most recent 30 days.
  • Proof of residency – A recent utility bill in your name at the address listed on the application.
  • Proof of a working phone – A recent phone bill in your name. This can be a landline or contract cellphone.
  • Proof of identity – A valid driver’s license or state I.D.
  • A down payment – Most subprime lenders ask that you make a down payment of at least $1,000 or 10% of the vehicle’s selling price, but this varies. Cash, trade-in equity, or a combination of both are acceptable for a down payment.

CarsDirect Tip: Consider making a larger down payment than what’s required if you have bad credit. Not only does it improve your approval odds, you also save money in the long run.

Step 6: Find a Lender

You may feel ready to buy your first car, but if you’ve been turned down for pre-approval, where do you go from there? You come to us, of course!

At CarsDirect, we work with a nationwide network of special finance dealerships that have the lending resources available to help people with various credit issues. Don't stress out driving from dealer to dealer, simply fill out our no-obligation and free auto loan request form to get the process of finding a local dealership started right now!


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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.

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