How to Get a Car Loan

Whether you're buying new or used, here are the steps to getting a car loan

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Whether you're shopping for a new or used car, chances are you're going to need a loan. Getting a car loan involves getting approved by a lender and using that loan to purchase your next vehicle. But there are a few key things you'll want to do first.

1. Check your credit score and credit report
2. Determine your budget
3. Check with more than one lender
4. Get preapproved
5. Finalize the loan

1. Check your credit score and credit report

You are entitled to a free credit report from each of the three major credit bureaus: Equifax, Experian and TransUnion. Your credit report shows how you've managed your credit in the past and gives lenders a look at your history of making payments on time. Take a look at your report to make sure there aren't any fraudulent items, such as accounts you never opened or payments that weren't actually late.

Your overall credit score will help determine not only your likelihood of being approved for financing but also the amount a lender will loan you, as well as the interest rate on the loan. Generally speaking, credit scores are broken into the following ranges, according to Equifax:

  • 800 and above: Excellent
  • 740-799: Very good
  • 670-739: Good
  • 580-669: Fair
  • 579 and below: Poor

If you're concerned about whether your credit score is good enough, read "What Credit Score Do You Need to Buy a Car?" for more information. Once you're familiar with your credit score and credit history, you're ready to research lenders.

2. Determine your budget

Even before you apply for a loan, it's important to figure out exactly how large of a payment you'll be able to afford every month. Remember: A car loan payment includes not only the selling price of the car but also taxes and interest charges.

Edmunds has a car loan calculator to help you determine exactly how much you can afford, taking into account factors such as your loan amount, down payment, interest rate and more. Edmunds also has the most recent car loan interest rates available by state.

3. Check with more than one lender

While many carmakers have their own financing divisions for new car purchases and offer good rates, it's still worth checking with third-party lenders. A few good options are:

  • Banks: Both national and regional chains usually have auto loan programs. If there's a bank you use for your primary checking and savings accounts, consider checking with it first.
  • Credit unions: Credit unions sometimes offer lower interest rates than traditional banks, but you usually need to be a member to take advantage of that rate and get approved.
  • Other online lenders: Some online lenders can prequalify you for offers from multiple lenders by requiring only one loan application.

4. Get preapproved

Once you've researched a few lenders, you can submit preapproval applications. You'll need to choose a term, which is how long the car loan will be. The lender will then tell you the amount of the loan it's willing to approve and the interest rate it will offer. Read "How to Get Preapproved for a Car Loan" for more detailed information on the benefits of these early applications.
An important note: Preapprovals often involve what's known as a "hard inquiry" — something that shows up on your credit report and can temporarily impact your credit. You'll want to keep these hard inquiries within a two-week period so that the credit bureaus understand you're shopping for multiple offers. There are ways to apply for a loan without a hard credit inquiry, which we detail in a related article linked here.

5. Finalize the loan

Remember, getting preapproved for a loan in no way makes you obligated to follow through with accepting the loan. You're now able to choose the loan that approves you either for the highest amount or the lowest interest rate, or both — whichever is most important to you.

From this point, you're free to search for the car of your dreams as long as it fits within your preapproved budget. If you need help choosing a car, read "What Car Should I Buy?" Lastly, if you need help with the buying process itself, take a look at our guides on how to buy a new or used car.

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Steven Ewingby

Steven Ewing has worked in the automotive industry since 2003. In that time, he's written thousands of articles and tested just as many vehicles. Steven is Edmunds' director of editorial content and has previously been on staff at Winding Road magazine, Autoblog, Motor1.com, CNET, and was the U.S. correspondent for Top Gear magazine. Steven has also contributed to Automobile magazine, Car and Driver, The Drive, Jalopnik, Porsche Panorama, and dozens of other publications. In his spare time, Steven loves to play the drums, cook, and drive his 2000 BMW M Roadster.

Ronald Montoyaedited by

Ronald Montoya has worked in the automotive industry since 2008. He has written over a thousand car related articles and bought and sold over 100 vehicles over the course of his career. Ronald is a senior consumer advice editor and content strategy at Edmunds and has also contributed to the Associated Press. He has also been featured on ABC, NBC and NPR on a number of car shopping topics. He got his start in the auto industry by taking a part-time job at a car dealership, where he worked in the service and accounting department.

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