Looking to Finance a Car Purchase? Here's How to Get a Car Loan

If you're gearing up to purchase a vehicle, here's a look at how to get a car loan, from beginning your research to closing on the loan and driving away.

Sarah Brodsky | 

Mar 3, 2022 | 5 min read

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If you're gearing up to purchase a vehicle, the process of getting a car loan may go more smoothly if you're well prepared. Before diving into loan applications, it can help to take a step back and review the process. It's important to understand your specific needs and what will be required of you.

Here's a look at how to get a car loan, from beginning your search to closing on the loan and driving away.

Research Lenders and Apply for Pre-approval

To start, make a list of potential lenders you want to consider. These could be banks, credit unions, or online lenders. You might want to start with any lenders you already have a banking relationship with or ask friends and family which lenders they recommend.

It's wise to apply for pre-approval from a few different lenders. This can give you an estimate of how much you may be able to borrow and what interest rate you'll be charged, allowing you to choose the best option for your situation.

It can also help to check your credit report to make sure the information is correct. If you find any mistakes, consider fixing them before you apply for pre-approval.

You can fill out pre-approval applications online or by phone, or visit a lender in person. You'll need to give some information about yourself, such as your name, address, and Social Security number. You'll also need to tell the lender about your income and share your employer's contact information. Lastly, you'll likely need to state whether you rent or own your home and how much you're spending each month on your rent or mortgage.

When getting a car loan, it's a good idea to complete all applications within two weeks to protect your credit score. Lenders will conduct hard credit pulls when evaluating your applications, and those credit inquiries can negatively impact your score. But several credit pulls from auto lenders can count as just one inquiry if they all happen within a short period.

If a lender pre-approves you, you'll get a letter specifying the amount you're pre-approved to borrow, and you can take this document with you to car dealerships when you shop for your car.

Compare Trade-In Offers

Trading in your current car might offset some of the cost of your new vehicle. If you're considering this, look up your car's value online, then head to a few dealerships and get trade-in quotes in writing.

Once you've determined how much you can get from trading in your car, subtract the amount you still owe on it (if any). The result is your equity, which you can use toward a down payment on your new car.

Decide on a Budget

One of the trickier parts of how to get a car loan is figuring out how much you want to borrow. Plug the information from your pre-approval letters into a loan calculator to see how large your monthly payment will be for loans of different sizes and terms. You'll also want to look at the total cost of each loan, including interest and fees. Keep in mind that while loans with longer terms may come with lower monthly payments, they can generally lead to a significantly higher interest bill over time.

Add up the amount you're comfortable borrowing and the money you have on hand for a down payment. If you're planning to trade in a car, add the value of your equity, too. This gives you the maximum amount you could spend on a car, including its sticker price, sales tax, and fees.

With your budget and pre-approval letters in hand, you're ready to shop for your new car.

Apply for a Loan

After selecting a car, it's time to decide on a lender. You may want to compare the offers from lenders who pre-approved you with the financing offered by the dealership.

In addition to looking at the APRs and monthly payments, consider how much you would pay in total over the lifetime of the loan for each option. For example, the dealership might offer you a choice of financing with a 0% APR or a cash-back rebate. Financing with zero interest may seem like a great deal compared with quotes from other lenders, but this approach isn't always cheaper in the long run. In some cases, taking a cash-back rebate and using it to make a larger down payment may ultimately result in lower costs. Be sure to run the numbers with a loan calculator to figure out which choice gives you the lowest price overall.

Your lender will tell you what documentation you'll need to finalize your loan application. You'll typically be asked to supply proof of your identity, income, and residence.

Finally, you'll provide documentation for the car you're buying, including the purchase agreement and proof of insurance.

Close on Your Loan

The end of the process is now in sight. Once you've made your decision and applied for a loan, your lender will give you documents to sign. Read through them and ask questions if there are any details you don't understand. It's a good idea to confirm that the APR, loan term, monthly payment, and amount that you're borrowing are all what you expect. If they're not, follow up with the lender.

When everything looks good, sign the documents to complete the process of taking out the loan. You'll get a copy of the signed paperwork, and your lender will also give you a letter letting you know where to submit your payments and when they're due. Now that you know how to get a car loan, all that's left to do is enjoy your new vehicle purchase.

Sarah Brodsky

I’m a writer with over a decade of experience focusing on money. I’ve written for banks and personal finance websites, and I’ve covered all kinds of financial topics, from auto loans to credit scores. My goal is to break down the details of complex decisions so they’re easy to understand. I’m excited to share what I’ve learned with consumers as they compare their options and get started with financing their next car.