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Finding an auto loan online can be much more convenient than going from lender to lender in person. Plus, you’ll have more options, especially if you don’t live in a big city with many lenders. Many consumers also find that online loan options are more accessible for those with lower credit scores.
If you’re considering this option, there are steps you can take to help make getting a car loan online as seamless as possible. Setting your budget in advance and comparing multiple lenders can help you save.
- While applying for a car loan online can be convenient, it is important to research and read reviews of online lenders before sharing personal information.
- To secure the best deal on a car loan, compare factors including annual percentage rates (APRs), loan terms, potential discounts, fees and penalties among multiple lenders.
- By getting preapproved for a loan, you can gain a negotiation advantage before visiting a dealership or shopping online.
1. Set your auto loan budget.
Much like buying a house without a budget can lead you toward default, you don’t want to buy a more expensive car than you can actually afford.
Figure out what your maximum monthly payment could be, and then consider spending less. This will leave an additional budget for car repairs, registration and other transportation costs.
Bankrate’s take: Experts recommend spending no more than 20 percent of your take-home pay on auto-related expenses, including car payments, insurance and fuel.
2. Shop around for promising lenders.
One of the drawbacks of finding an auto lender online is that you’re likely to come across unfamiliar lenders. They may be legitimate, but it’s always smart to do some extra vetting if you don’t recognize a lender’s name or brand.
Be sure to check out auto lender reviews before handing over personal information to someone promising an auto loan. Make sure your potential lenders are licensed to operate in your state and check their reputation with customers on the Trustpilot and Better Business Bureau websites.
3. Gather your documents.
Unlike an in-person lender visit, where you can hand over an original pay stub, online applications require digitized versions of all documents. You’ll want to digitize and organize your documents before you apply for car loans online so you can complete the process in one sitting. Documents to have on hand when you apply for a car loan include:
- Proof of income
- Proof of identity and address
- Proof of insurance or an insurance quote that will cover your new vehicle
- Details about the exact vehicle or type of vehicle you want to buy
- Personal details, including SSN, so the lender can pull a full credit report
Bankrate’s take: The lender will specify the appropriate file format, but PDFs are a good bet as this format is widely used and makes it harder for other people to alter them.
4. Get preapproved.
Getting preapproved for a loan means you have a general idea of how much a lender will offer. If you get preapproved, the lender is a firm offer with exact interest rate and lending amount figures. This makes the comparison process easier.
Seek preapproval offers from at least three lenders. You may be able to leverage a better offer from one lender to get an improved offer from another. Plus, walking into a car dealership with multiple lending preapprovals in hand could give you more confidence when negotiating.
Applying for preapproval often requires authorizing a credit check and supplying information about your income.
5. Compare your loan offers.
Applying online for an auto loan means you can get multiple offers quickly. If you apply in the morning, you may be comparing offers by the end of the day.
Perhaps the most important thing to compare between loan offers is the auto loan interest rate. Even a single percentage point can add hundreds or thousands of dollars to the life of the loan, so finding the best rate is important.
You also want to consider:
- The loan term: A longer loan term means smaller payments, but it also increases the total interest paid on the loan. You may be better off sticking to a 48-month loan with bigger payments to own your car outright sooner.
- Vehicle restrictions: Some loans may not allow you to buy an older car or purchase certain models. Make sure the loans you consider don’t prohibit you from buying the car you want.
- Speed of funding: Some loans fund quickly, while others may have a waiting period. If you need a car ASAP, this is an important consideration.
- Lending fees: You’ll also find that some lenders assess origination and prepayment fees. Origination fees cover the costs associated with processing the loan application, and prepayment fees are charged by the lender if you pay the loan off early. Try to avoid lenders that charge excessive fees to keep your borrowing costs low.
Paying attention to the details is especially important when you get a loan online. Since there isn’t a bank representative there to walk you through the details, you want to spend more time with the paperwork or reach out to the lender’s customer service with concerns.
6. After you’ve found the right car, finalize the auto loan.
You usually have 30 to 60 days from the date of a preapproval to accept your lending offer. Your lender will wait until you have decided on a specific car to disburse the money to the seller. If you bring in your lender’s information to a car dealership, they will often communicate directly with the lender to facilitate their payment. Be sure to bring contact information for your online lender to the seller.
Should you get an auto loan online?
There are several benefits of getting an auto loan online. Still, this option is not without drawbacks worth considering before moving forward.
- Accessibility: Online car lenders are often more likely to approve credit-challenged borrowers.
- Convenience: You can apply from the comfort of your home and learn if you’re prequalified quickly — often in just a few minutes.
- Rapid funding times: Some lenders offer funding as soon as the same or the next business day.
- Reputation: You’ll likely recognize very few names among the dozens of online auto loan providers. That means you’ll have to research each lender’s track record and customer service.
- Interest rates: Online lenders tend to set their interest rates higher than brick-and-mortar lenders do.
- Limited support: You’ll be limited to phone or chat support, which can be problematic if you prefer to speak with a loan officer face-to-face.
The bottom line
Getting an auto loan online may be fast, but be wary of unknown lenders. Online financing can leave you vulnerable to potential scams.
Vet your lenders and get a preapproval letter from multiple lenders to make comparison easier. If you take your time and read the terms carefully, you may score a rate that beats an in-person offer.