Are you buying, selling, or registering a vehicle? Be prepared to satisfy any insurance requirements. Get a free quote.

ATTENTION

Please Enter your ZIP Code to Get Started.

Financing your car purchase is one of the most common ways to buy a car. 

First, it’s important to understand how car loans work. 

Once you’ve got the basics down and you’ve found the right car for you, you’re ready to get a car loan. 

What does it mean to “Finance a Car”?

Financing a car simply means that you’ll be borrowing some money in order to purchase a vehicle. 

In other words, you’ll be getting money to pay for the vehicle you want now, and you’ll be paying that money back over time. 

The amount you’ll need to borrow is the price of the car minus the money you have for a down payment. 

Keep reading to find out how to get the best car loan for your purchase. 

How to Get a Car Loan

Getting a car loan is a fairly simple process, but in order to get the best deal you should have a good understanding of how the entire process works. 

First, you should understand the key factors that go into determining the cost of your loan. 

How much you’ll pay for the vehicle over the lifetime of your loan really boils down to your APR, or rate, the term or length of the loan, and how much you’re borrowing. 

Your rate, term, and principal factor how much you’ll be paying in total once your car is paid off. 

To lower your total cost, you’ll want to get the best rate. 

Step 1. Know Your Credit Score

The main factor in determining the rate you’ll be able to get is your credit rating. 

Before you start applying for financing, you should have an understanding of your credit report. 

Errors on the report can have a negative impact on your credit rating, which can lead to a higher interest rate or being denied for financing altogether. 

To simplify matters, the higher your credit score, the better rates and higher loan amounts lenders will be willing to offer. 

Step 2. Know What You Can Afford

Along with your credit score, you should have a good understanding of what you can afford in terms of monthly payments and the overall cost of the vehicle. 

If taking a loan with payments you can afford means that the car is going to cost way more than it’s worth, it’s probably a smart idea to shop around for a less expensive vehicle. 

You should also understand your total monthly income, existing debts, and other expenses and responsibilities you have. 

A lender will typically look at net income plus outstanding debt. They generally do not factor in your costs like housing, food, childcare, utilities, etc. – that’s your responsibility. 


You should also consider the cost of owning the vehicle. This will include your car insurance premiums, fuel, maintenance, parking, etc. 

Before you decide to buy a car, it can be a good idea to compare a few insurance quotes to get an idea of how much your premiums will cost you each month too. 

Step 3. Lender Options

When it comes to finding a lender for a new car purchase, you’ve got a few main options including:

  • Dealership/manufacturer financing.
  • National banks. 
  • Local banks and credit unions. 

If you’re buying a car from a dealership, the automaker’s financing options will typically be presented to you up front. In fact, if you’ve been watching any TV or listening to the radio, you’ll probably already have some idea of the current financing offers that may be available for a certain make and model. 

If you’re interested in getting the best rate, you’re going to have to compare loan offers from a few different lenders. 

Be aware that every time you apply for pre-approval, the lender will check your credit score. “Hard checks” on your credit can impact your credit score negatively. Only apply to lenders you’re serious about that can offer you the best deal. 

Alternatively, you can apply for “pre-qualification”, which typically only runs a “soft-inquiry” on your credit and won’t impact your score. 

What do you need to get an auto loan?

Once you’re ready to start applying for financing, there are a few pieces of information and details you’ll need to be prepared to provide. They include:

  • Your name. 
  • Your address.
  • Your Social Security Number. 
  • Your gross income. 
  • Your outstanding debt. 
  • The down payment amount. 

You’ll also generally have the option of selecting your loan terms. 

Remember, a longer loan will mean lower monthly payments, but a higher overall cost of borrowing. 

Most experts recommend getting a car loan for no longer than 60 months for new vehicles. 

Ready to start researching what kind of car loan you need? Check out our free car payment calculator.