What are the Requirements for a Car Loan?
Do you need a new (or new-to-you) car? Unless you can pay for the vehicle entirely out-of-pocket, you will need to secure a car loan to drive away in a new ride.
When you get a car loan, you’ll borrow a sum of money from your lender to purchase your vehicle; then, you will have to pay back the amount you are borrowing, plus interest, over an agreed-upon period of time.
Because vehicles often cost thousands of dollars, most people need to take out a car loan. Your financial institution will guide you through the process, but you should know what it takes to secure a loan ahead of time.
Who Is Eligible For a Car Loan?
You may have heard that you need to have great credit to get a car loan, but car loans are actually accessible to almost everyone over the age of 18 with a reliable source of income. That said, the best car loans (those with the lowest interest rates and most flexible terms) are usually offered to people with good or great credit.
Lenders are looking for assurance that you will be able to pay back the money you are borrowing. If you can’t afford to make your car loan payments, they may be forced to repossess your vehicle; this is something both the borrower and lender want to avoid.
So, financial institutions assess each borrower with lists of criteria to determine that person’s creditworthiness (that is to say if they should trust you to borrow their money and how likely you are to pay it back). The specific criteria to determine creditworthiness varies by lender, but a few key factors will be taken into consideration.
What Do You Need To Get A Car Loan?
As mentioned above, lenders want to know you have a few certain things before they trust you with their money. The following criteria indicate that you are creditworthy so it’s best to have these at your disposal at the time you apply.
What Lenders Consider When Determining Creditworthiness
- Credit Score - You will generally be offered a better interest rate with a high credit score. A perfect credit score is 850, but a score of 800-850 is considered to be in the exceptional range. If you fall short of this range (and 80% of Americans will), you’re not excluded from getting a car loan with a good interest rate. Car loans are available to borrowers with low credit scores as well. You may just not get the interest rate you were hoping for. (If this is you, consider working to raise your credit score before applying for an auto loan.)
- Income - Lenders will want to see proof of your income and may ask for a job history as well. You need a reliable income to make your monthly payments so be prepared when they ask where you work, how long you’ve been employed there, and how much you earn.
- Identification - You will need proof that you are who you say you are. A driver’s license will work for this requirement.
- Proof of Residence - The lender will want proof that you live where you claim to live as well.
- Debt-to-Income Ratio - Your debt-to-income ratio is determined by all of your monthly debt payments (mortgage, credit card debt, student loans, etc.) divided by your gross monthly income. It’s expressed in a percentage. A debt-to-income ratio of 35% or smaller is considered acceptable to most lenders.
How Do You Apply For A Car Loan?
Applying for a car loan is a fast and easy process today. Many financial institutions allow you to complete the entire process online. Simply choose a lender, provide the information and documents they ask for, and wait for a response. Lenders want this business, so you won’t wait long!
Why You Should Consider Pre-Approval
It’s also a good idea to obtain a car loan pre-approval before locking in a car loan. To get pre-approved, you will submit your application information and required documentation ahead of time. Then the lender will provide you with an amount of money they are willing to loan you, along with the interest rate you will most likely qualify for if you choose to borrow from them.
A pre-approval is handy to have in your possession before you even step foot in a dealership. This way, you have a vehicle budget in mind from the start and it tells the auto dealer that you are a qualified buyer. As a bonus, you can decline dealership financing (which is typically a more expensive loan option) when you already have a pre-approval in hand.
Apply For A Car Loan With OUCU
Now that you are equipped with what you need to apply for an auto loan, you are ready to take the next step and apply! Ohio University Credit Union is here to help you through the process.
It’s easy to apply for a car loan or pre-approval with OUCU online. Our competitive interest rates will give you the power to secure the car you want and our friendly, personalized service will make you feel like the valued member you are. Check out our rates and get on the road to your next car today.
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