Happy Driver: 7 Key Things You Need to Apply for a Car Loan
In 2009, the average loan for a new vehicle was over $32,000. For a used car, it was over $20,000. While car loans help make purchasing a car easier, it is a big financial decision.
If you’re thinking about financing your new car, you’ll need to do research to make sure you get the best loan and are ready to go through the process.
Here are the seven key things you need to apply for a car loan so you can be a happy driver.
Proof of Identity and Residence
Due to federal law, lenders need to verify their customers’ identities and residence. So you need to make sure to bring a valid ID and proof of residence when applying for a car loan.
Many people use their driver’s license as identification. You may also use a passport or government-issued ID card, such as a medicare ID card. It needs to have your name with a signature.
A driver’s license with the current address or matching the address on your credit report is usually enough for most lenders to verify your residence as well.
But, if you recently moved, you’ll need additional documentation. A document such as a utility bill, mortgage statement, credit card or bank statement, or similar correspondence at your current residence is usually a good source.
Proof of Income
You also need to show that you are actively earning income. This helps the lender know you will be able to repay the loan. Make sure to bring pay stubs from the past month. They should show your year-to-date income as well.
You might be able to use bank statements to prove income but may need to provide up to six months’ worth or a W-2. The lender may call your employer to verify income and employment as well.
If you are self-employed, you’ll need to use your tax returns and recent bank statements to show income. You’ll need at least the past three months of bank statements and at least two years of tax returns.
If you can show a larger income through additional sources, you may be able to get better terms or a larger loan. Don’t forget to bring proof of:
- Rental income
- Legal settlements
- Child support
- Social Security
Credit and Financial History
Another part of the auto loan financing process is looking at your current and past financial situation. This adds to their decision on if you can repay the loan. This includes your debt to income ratio, which looks at the percentage of your monthly gross income used to pay debts.
Lenders will also take a look at your credit history and credit score. You don’t need to bring this with you. Using your personal information and consent, they can access it. Just make sure you know your Social Security number.
It can help to know what information the lender might see in your credit history and if you need to improve it. They’ll look for late payments, unpaid bills, and your total debt. Public records and collections such as bankruptcies, foreclosures, and liens are also considered.
Proof of Insurance
State laws require that all cars on the road need to be adequately insured. Because of this, your lender needs to see proof of insurance coverage before you can leave with the car.
If you purchased insurance already, make sure to bring the documentation. It should meet state law and any other requirements specific to the lender.
If you have a policy on your previous car, there may be a grace period that will cover your new car for a short time. Just be sure to call your insurance provider before.
You could call an insurance company at the dealership to get coverage during the financing process. However, you’ll be able to shop around if you find coverage before. This could help you get much better rates and save money.
If you’re applying for a used car loan, you need to know some information about the car you’re buying. Your lender needs:
- Purchase price
- VIN (vehicle identification number)
- Year, make, and model of the car
- Original title
- Any liens on the car (if any)
A dealer is required to give you a comprehensive buying guide. It includes the information you need for the loan. They may even send this information straight to the lender.
If you’re working directly with the lender or a private seller, you’ll need to complete a bill of sale, purchase agreement, or buyer’s order. It should include this information.
Trading in a car can help you get a finance deal or even just make the loan process easier. But your lender needs to know how much the car is worth first.
You will need to provide the title to the car you are trading in. This proves you are the owner and lists any lien holders. You’ll also need to bring the registration and any other documents that can help the lender determine the value of the car.
In some states, you’ll also need an odometer statement, smog certificate, and disclosure of damage. The dealership usually has these forms if you don’t already.
Down Payment Method
You can use a guide to borrowing for your next car purchase to figure out how much you might be spending. This can help you determine what your down payment might be. Different lenders and dealers accept different payment methods. Common ones include:
- Personal check
- Cashiers check
- Credit card
- Debit card
- Preapproved loan
- Personal loan
If you plan on using a credit or debit card make sure the dealer will accept it. You should also check how much they’ll accept on the card. Call your card issuer too. Some have limits on single transactions. Your credit availability can affect how much you can put on the card.
A personal loan may help you pay for a down payment. But just remember it can also affect your chances of approval for your car loan. It will change your debt to income ratio and will show up on your credit report.
Be a Happy Driver
Having everything you need to apply for a car loan ready can make your car purchase much easier. Make sure to gather these seven key things you can leave a happy driver.
If you found this article helpful, check out our other finance articles too.