How To Apply For Auto Loan | Complete Guide

If you’re thinking about buying a car, the first step is to secure financing for the vehicle. An auto loan is essentially money you borrow to pay for the car. The details of the loan can vary, so it’s important to compare your options and choose the right loan, as it can potentially save you hundreds or even thousands of dollars over time.

What exactly is an auto loan?

It’s a type of loan that allows you to borrow money from a lender to buy a car. You’ll need to repay the loan in fixed instalments over a predetermined period, and interest will be added to the amount you borrowed.


Your credit score plays a significant role in this process. If you have a high credit score, you might qualify for a lower interest rate, ultimately saving you money in the long run. Additionally, your credit score influences the required down payment and the initial loan amount you can borrow.

How Auto Loans Work

Auto loans come in various forms, such as dealer financing, traditional bank or credit union loans, and online lender loans. The choice of the best loan for you depends on factors like your credit score, loan amount, and the specific vehicle you’re interested in.



Dealer Financing

Convenient as you can handle both shopping and financing at the dealership.

The dealer may check your credit and offer promotional rates, especially if you have a strong credit score.

However, dealer financing often comes with higher interest rates, and dealers may receive a commission or markup when connecting you with a bank or credit union.

Bank or Credit Union Auto Loan

You can apply for a car loan directly from a traditional bank or credit union.


This process avoids the dealership, but it may take longer, ranging from one business day to a week to secure the loan.

Lenders may have specific minimum and maximum loan amounts, so ensure they offer the desired amount for your new car.

Online Auto Loan

Applying for an auto loan online is another option, often processed remotely.

The approval process is similar to traditional loans, but it can be faster, with approval possible in as little as one business day.

In summary, the choice between these options depends on your preferences, credit score, and the urgency with which you need the financing. Each option has its pros and cons, so it’s essential to consider your individual circumstances before deciding on the best auto loan for you.

How To Apply For Auto Loan

Getting a new or used car can be a bit confusing, but if you break it down into simple steps, it can help you avoid the common headaches of car shopping.

When it comes to getting an auto loan, your budget, the lenders available to you, and the type of vehicle you’re eyeing all play a role. The best way to find a good deal is by shopping around for different loan options.

Figure Out Your Budget

Before you apply for a loan, it’s crucial to know how much you can actually spend on a car. Consider your current financial situation, think about the loan amount you’ll need, and factor in regular maintenance costs to get a clear picture of your budget.

Check your credit

Lenders generally prefer borrowers who have good to excellent credit, typically indicated by a FICO score of 670 or higher. While individuals with lower credit scores can still be eligible for auto loans, the most competitive interest rates are usually reserved for those with good or excellent credit.

Knowing your credit score is crucial because it helps you identify lenders that you qualify for, enabling you to find the most suitable loan for your specific situation. Some banks, loan companies, and credit card issuers may offer a complimentary credit score check along with your monthly billing statement.

While many lenders rely on the FICO score, not all of them do. If you’re considering a lender that doesn’t use FICO, it’s advisable to inquire about the scoring model they use and check if you can access it for free.

Organise your finance

  • Avoid New Debt: Refrain from acquiring additional debts like credit cards or personal loans, as opening new credit accounts can temporarily lower your credit score. Postpone any new accounts until after securing your auto loan if possible.
  • Manage Credit Usage: High credit usage affects your credit score. Minimise revolving credit balances and work on paying down existing debts. Prioritise making on-time payments to enhance your credit score before applying for an auto loan.

Get pre approved for an auto loan

Apply for Pre Approval: Lenders provide pre approval for auto loans, allowing you to lock in your interest rate before car shopping. This step is crucial for effective negotiation at the dealership. Prepare standard documents such as proof of income, employment, and insurance for a smooth pre approval process.

Compare Offers: Evaluate loan offers from different lenders, considering not only interest rates but also fees and any vehicle restrictions. Take time to review your options before starting the vehicle shopping process.

Find and finance your car

  • Select Your Car: With pre approval in hand, or being prequalified with a few lenders, begin shopping for your car. Ensure the chosen vehicle meets your lender’s criteria, which may include restrictions on where and from whom you can buy.
  • Evaluate Dealership Offers: Check what the dealership can offer in terms of financing, keeping in mind that dealership financing might have higher interest rates. Compare their terms with your pre approval offer, and choose the option that best suits your needs.

Finalise your auto loan

  • Confirm Terms: Once you’ve chosen the right auto loan, confirm the terms with your lender. Submit any required paperwork, including proof of insurance, before signing the loan contract.
  • Complete Documents: Obtain the vehicle title and registration. Work with the dealership or seller to ensure the necessary documents are updated, making you the official owner.
  • Take Possession: After finalising the auto loan and completing the sale, take possession of the vehicle. While the lender holds the lien, you’re responsible for maintenance and upkeep.

Start repaying your loan

Commence Payments: Begin making payments according to your loan agreement’s amortisation schedule, which breaks down monthly payments by interest and principal. Consider opting for automatic payments if offered by your lender, potentially securing a small APR reduction.


Securing financing for a car can be intricate without proper preparation. However, you can simplify the process by comparing offers from leading lenders and checking your interest rate before you start shopping. This approach ensures that you receive the most competitive deal available.