If you want to get approved for auto loan financing, don't just wander into a car dealership to find the car you want. Show up prepared so that you're in the best position to get a low-rate loan.
When you're applying for an auto loan, you can help a lender make a decision that's favorable to you by bringing the right documentation with you and understanding how your credit history affects the interest rate you'll be offered. If you don't know how to get a car loan or how to finance a car, keep reading.
Click through to find out what you need to get a car loan — or refinance the car loan you already have.
The Documents Needed to Get a Car Loan
So, what do you need to get a car loan? When you apply for a new car loan you'll need certain documents to prove things, such as your income and your address. Here are the documents you need to get a car loan:
1. Proof of Income
Most lenders require proof that a borrower is actively earning income to ensure he can make his car payment. The easiest way to satisfy this requirement is to bring a pay stub that's less than a month old and shows your year-to-date income.
If you're self-employed, you'll need tax returns and bank statements. Generally, lenders require two years of tax history but might ask for as many as five; you'll also need bank statements from the past three months.
2. Proof of Residence
A lender must verify your address on the car loan application. You have several options to prove that you live there: You can bring a utility bill or any other business correspondence that you receive at your current address. You'll also need to provide a valid driver's license if you plan to drive away with a car.
3. Proof of Insurance
State laws require that all cars on the road be insured, so the lender has to know that you have adequate coverage before he can give you a car loan. If you have already purchased insurance, bring documentation.
If you don't have coverage, you'll probably be able to call an insurance company from the dealership and secure it. Financing through the dealer, however, won't enable you to shop around for the best policy rates from other lenders. If you have a good relationship with your bank, for example, you might be able to get a better car loan rate with a preapproved car loan than you would through the dealership.
To get a car loan you must provide proof of your identity. You will need a photo ID with your signature on it, a current utility bill in your name that has the same address as your ID, and two months of current bank statements. Other acceptable forms of ID include a passport, a government-issued card like a Medicare ID, stock certificates, and titles to a home or other vehicles.
5. Credit and Financial History
Lenders are concerned with your current and past finances, including your current debt-to-income ratio — or the percentage of your monthly gross income that goes toward paying debts — as well as your credit history and credit score.
You won't need to bring anything — the lender can access this information with your basic personal information and your consent. Just be aware that the lender will analyze your current and past debt history.
6. Vehicle Information
If you're applying for a used car loan, you'll need a lot of information about the vehicle you're buying. The lender will want to document the vehicle's purchase price, identification number, year, make, model, mileage, original title and any liens that might be on it.
The car dealer is usually bound by the "used car rule" to provide you with a comprehensive buyer's guide for the car you're buying. That guide contains the information you'll need to apply for a car loan, plus facts about your rights and responsibilities. You should thoroughly review that guide and understand everything before you sign on the dotted line.
7. Trade-in Documentation
If you're trading in a car you'll need its title and registration papers — and any other documents that might help the lender determine what the trade-in vehicle is worth. Because the vehicle's worth will impact how much financing you receive, make sure you bring these things with you to streamline your loan.
How to Get Approved for a Car Loan
You can increase your chances of getting approved for a loan as well as getting a good rate. Lenders will check your credit during the approval process, which means you should, too. Pull your credit report from all three agencies — it's free once a year and it won't affect your credit score — to find out what's in your report.
If you find any incorrect information, follow each bureau's instructions on how to dispute credit report errors. Also, consider consolidating multiple credit cards and paying off as much debt as possible. Finally, close a few credit card accounts if you have a lot of revolving debt, but keep your older accounts open — credit age affects your score.
Whether you're looking at a used or new car finance deal, you're asking a lender to take on a risk. Set the lender's mind — and the underwriter's — at ease by bringing essential items, having critical information ready, and putting in the effort to make yourself a more attractive borrower.
Barri Segal contributed to the reporting for this article.