Skip to Main Content

What to know before you apply for a car loan

Man and child sitting at table smiling at laptop
Ippei Naoi/Getty Images
Man and child sitting at table smiling at laptop
Ippei Naoi/Getty Images
Bankrate Logo

Why you can trust Bankrate

While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for .

ON THIS PAGE Jump to Open page navigation

Purchasing a new car or used vehicle is a significant financial decision — and there are some important steps you should take before applying. You can save time and money by preparing in advance.

What to do before you apply for an auto loan

Prior to visiting a dealership or diving into online buying, there is some homework to get the best deal. This research will help you understand how much vehicle you can afford, the price of ownership and expected loan rates based on your credit history.

1. Set your budget

Your budget is your guide to understanding how much you can afford. Take advantage of a car loan calculator to experiment with loan amounts and rates to find an affordable monthly payment. But wait until you’ve moved onto shopping for lenders to finalize any numbers.

And keep in mind that vehicle upkeep is more than just the monthly cost. It includes factors such as gas, insurance, vehicle add-ons and any trips to the mechanic — expected or otherwise.

Car Outline
Bankrate tip
Shop the total amount, not just the monthly cost. Focus on the entire cost you will have to pay over the course of the loan and the incidental expenses that come with owning a car.

2. Clean up your credit report

Your credit score and history will almost always serve as the primary factor for the rates that lenders will offer you. These rates will influence your out-of-pocket monthly cost and the overall cost of the loan.

Credit score requirements vary by each lender. Most lenders will offer better rates to borrowers with scores above 670. Applicants with scores above 740 can potentially benefit from the lowest rates, including 0 percent APR deals offered by the manufacturer or dealership.

Even still, having poor credit may not prevent you from finding a lender. Many lenders are inching away from traditional acceptance criteria and focusing on factors, such as education or job history.

Either way, it is in your best interest to improve your credit ahead of applying for a loan. Pay special attention to your debt-to-income ratio, which compares your monthly bills to your income. Doing so may help you score a competitive rate.

3. Gather your documents

There are a few documents that you will need when you submit a loan application. Be prepared to submit your personal and financial information as well as information on the potential car you want to buy.

  • Personal information, including your name, address, driver’s license and Social Security number.
  • Annual income, employer contact information and pay stubs.
  • Vehicle information, such as the age, mileage and VIN.

Vehicle information is the least important. Almost all lenders offer a preapproval process that gives you up to 30 days to shop for a vehicle. So, if you want to know how much you can afford before you hit the car lot, not having the vehicle information should not impact your approval prospects.

4. Shop around

As with most big purchases, you will have to take some time to explore several options in order to find the best deal. Shopping around for loans is key to knowing you are receiving the best rates and terms.

When considering which lender is right for you, read the fine print and check on extra costs, such as fees or penalties. There is no single best loan for everyone, so search for a loan that fits your specific needs.

You may also be offered financing through the dealership. Most often, dealerships don’t have the best rates available, but they could be useful in certain cases. Still, it’s better to walk in with a quote from an outside lender to give you the upper hand in negotiating for a fair rate.

5. Apply for loan preapproval

Applying for loan preapproval is one of the best ways to put yourself in control when it comes to negotiating. Preapproval gives you a firm idea of what terms and rates you can expect with a specific lender, often with only a soft credit check.

The best part: You often don’t even have to have a vehicle picked out yet, only the amount and term you want. Shopping around for multiple quotes — keeping in mind to stay in a two-week shopping period — is the first step to finding an excellent rate.

But comparing rates can be complicated, and not every lender offers preapproval. However, the added security is a huge plus, so consider looking for lenders that offer this option.

Next steps

After preparing your vehicle financing ahead of time, the fun part can begin. Use your budget and preapproval to effectively shop for your car with the same thoroughness you used to get the best auto loan.

Learn more

Written by
Rebecca Betterton
Auto Loans Reporter
Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers in navigating the ins and outs of securely borrowing money to purchase a car.
Edited by
Auto loans editor