How To Get a Car Loan

Getting a car loan can be daunting, but our guide will walk you through the process

We independently evaluate all recommended products and services. If you click on links we provide, we may receive compensation. Learn more.

A golden retriever sits in a car trunk, anticipating a journey, his owner stands beside him

Catherine Falls Commercial / Getty Images

If you’re thinking about getting a car loan, you know it can be a scary prospect. Monthly car payments have been on the rise lately, soaring to an average of $716 for new cars and $526 for used cars during the fourth quarter of 2022.

The good news is there are many things you can do to boost your odds of getting approved for a car loan with a payment you can afford. It’ll take a little bit of preparation and work on your part, but it’s time well spent. 

Check Your Credit History

The first step to getting a car loan is making sure that the most important information your lender uses to make a decision—i.e., the information on your credit reports—is accurate. Unfortunately, errors on credit reports are all too common, affecting about 25% of people. Five percent may have errors that are bringing down their credit scores. This can unfairly harm you when you apply for a loan.

Luckily, it only takes a few minutes to check your credit reports on You can check other websites for your credit score, which can help you identify what rates you might qualify for in advance. If you find any errors on your reports, you can file a credit dispute with the credit bureaus to have the information corrected before you apply for a car loan. 

Figure Out Your Car Budget

If you figure out how much you can afford for a car before you buy one, you can save yourself a lot of hassle and heartbreak later if you find out the car you picked out is actually not affordable. To start, put together a detailed monthly budget so you know exactly how much you have available each month for car expenses. 

From this number, try to estimate the monthly cost for all of the things that go along with car ownership, including fuel, car insurance, and repairs and maintenance. The remaining amount is how much you can afford for a car payment. Don’t feel like you need to spend exactly this amount; it’s good to leave yourself a buffer in case of emergencies or if your budget changes over time (or, more accurately, when it changes). 

You can then play around with a car loan calculator to find out what loan amount you can afford, based on how much you already have saved for a down payment and the car loan interest rate you might qualify for based on your credit score. This will help you zero in on a car price you can afford without stressing yourself out. 

Get Preapproved for Multiple Car Loans

A good rule of thumb is to always check your rate with at least three lenders for any type of loan, although more is better. When it comes to car loans, this is called getting preapproved and it basically means you’re submitting a preliminary auto loan application. In addition to helping you zero in on the best loan, a preapproval letter also gives you a bargaining chip to use later.

To get preapproved for a car loan, lenders will want to see certain documents, such as your driver’s license, recent pay stubs or other income, recent tax returns, and/or bank account statements. You can speed the process up if you collect these in advance and keep them organized in a ready-to-go file. 


Try to get all of your car loan shopping done within a two-week period to reduce the negative impact on your credit score (in some scoring models you’ll get up to 45 days). After that, be mindful of any expiration dates on your preapproval offers so you can complete the application in time.

The Best Auto Loan Rates

Lender APR* Loan Amounts  Loan Terms
AUTOPAY As low as 2.99% $2,500–$100,000 2–8 years
Consumers Credit Union 5.54%–9.04% $500–$350,000 1–7 years
LendingTree As low as 2.24% $5,000–$150,000 1–8 years
LendingClub 3.99%–24.99% $5,000–$55,000 24–84 months
PenFed Credit Union 5.19%–17.99% $500–$150,000 3–7 years
Carvana Not Disclosed Not Disclosed Not Disclosed
OpenRoad Lending 1.99%–24.99% $7,500–$100,000 2–6 years
APRs are accurate as of publication.


Want to learn more about the top auto loans? See what makes the best auto loan lenders stand out.

Finding the Right Vehicle for Your Budget

Now that you know whether you’re likely to be approved for a car loan that fits your budget, you’re more than a tire-kicker and can seriously start shopping for a car. Depending on how much you can afford, you might consider a new or used car, and you can buy it from a private party (like on Craigslist) or from a dealer. 

If you’re buying a car from a dealership, one of the first questions most salespeople will ask is your monthly budget—a trick question that often allows them to sell you more than you need. Instead, tell them you’re a cash buyer and you’re only interested in the total vehicle price. If you’re buying a used car, make sure to budget for the cost of an independent mechanic inspection so you can make sure you’re not buying a lemon.


Buying a car can be intimidating, especially if it’s your first time. Learn all about how to buy your first car so you know exactly what to expect.

Compare Preapproval Offers to Dealership Offer

If you’re going with a car from a dealership, you can now reveal that you have several preapproved offers for financing already. Dealerships treat car loans as a separate sales product just like the car itself, and you can use this to your advantage by asking if they can beat any of the financing offers you’ve already lined up. Just about anything is up for negotiation aside from the taxes, title, and registration fees. 

Make sure to read each preapproval offer carefully. Aside from the interest rate, pay attention to these factors:

  • Hidden fees: These can include things like prepayment penalties.
  • Trade-in value: This is often negotiable and you can opt to sell the vehicle yourself if you’re not happy with the amount listed in the contract. 
  • Loan term length: The longer your loan term, the more interest you’ll pay in the long run. 
  • Vehicle add-ons: Dealers commonly add equipment or optional protection plans onto the contract, which you can get cheaper elsewhere (if you even need them at all).

Make Monthly Payments

Once you’ve signed on the dotted line and the dust has settled, your lender will reach out to you to start your monthly payments. It’s highly recommended that you sign up for autopay on your new car so that you never have to worry about missing any payments. 

If you miss a payment, you’ll face more than just an annoying late fee. It can also cause your credit score to drop significantly, and that can have negative ripple effects in years to come. Making even one payment 30 days late can cause your credit score to drop by over 100 points, in the case of someone with excellent credit paying off a mortgage (which is treated similarly to a car loan). 

Even worse, each mark will stay on your credit reports for seven years, although its negative impact will fade over time. And if you don’t catch up on those missed payments, your lender can repossess your car and leave you stranded.

How Can I Qualify for a Car Loan?

All lenders will require you to earn enough money to afford your monthly payments, but after that, the specific requirements may vary. Most lenders look for good or excellent credit, but you may still qualify with poor credit if you’re willing to pay more. You’ll also need to prove your identity, the information about the car you’re buying, and your address.

How Much Income Do I Need for a Car Loan?

Lenders generally won’t approve you for a loan if more than 40% of your monthly income goes towards debt payments (known as your debt-to-income ratio). After that, lenders will still check to make sure you’re earning enough to afford your new monthly payments before approving your loan application.

What If I Can’t Afford My Car Payment?

If you can’t afford your car payment, the first step is to reach out to your lender. This can be scary, but it’s in your lender’s best interest to help you repay the loan. Depending on your lender, you may be able to defer payment for a month or more, change your payment due date, or set up a payment plan. You can also consider refinancing your auto loan or selling your car if your lender isn’t able to help you.

Can I Pay Off My Car Loan Early?

You’re free to pay off your car loan anytime, but check your loan agreement for any prepayment penalties first. They’re not very common, but they can actually make paying off your car loan early more expensive than continuing to pay the loan outright. Prepayment penalties are banned in some cases depending on which state you live in, or if your car loan originally had a term length beyond 61 months.

Was this page helpful?
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Experian. "State of the Automotive Finance Market Q4 2022," Pages 23, 37.

  2. Federal Trade Commission. "In FTC Study, Five Percent of Consumers Had Errors on Their Credit Reports That Could Result in Less Favorable Terms for Loans."

  3. FICO. "Credit Checks: What Are Credit Inquiries and How Do They Affect Your FICO® Score?"

  4. Consumer Financial Protection Bureau. "What Things Can I Negotiate When Shopping for a Car or Auto Loan?"

  5. FICO Blog. "Research Looks at How Mortgage Delinquencies Affect Scores."

  6. MyFICO. "Chapter 7 & 13: How Long Will Negative Information Remain on My Credit Report?"

  7. Experian. "How to Qualify for a Car Loan."

  8. Experian. "How to Get a Car Loan."

  9. Experian. "How to Avoid Paying a Prepayment Penalty."

Related Articles