When applying for an auto loan, understanding the requirements can streamline the process and improve your chances of approval. Lenders typically consider several factors, including your credit score, income, and employment history, to assess your ability to repay the loan.
Lenders also may require proof of insurance and a down payment. Meeting these requirements not only helps in obtaining the loan but also in getting better interest rates, making your car purchase more affordable in the long run.
Keep reading for an overview of car loan requirements needed when shopping for an auto loan, along with tips on getting approved.
Key Points
• Key requirements for an auto loan include proof of identity, income, residence, insurance, and vehicle details. Credit scores above 600 are preferred.
• Making a larger down payment can prevent an upside-down loan, reduce monthly payments, and minimize borrowing costs.
• To improve loan approval chances, select a budget, maintain steady income, buy a newer car, and increase the down payment.
• For refinancing, gather proof of identity, income, residence, insurance, vehicle details, and current loan information, including lender and balance.
• Extending the loan term lowers monthly payments but increases total interest paid over the life of the loan.
Credit Score Requirements for Auto Loans
The credit score needed for car loan financing can be any score on the scale of 300 to 850. Some lenders may offer subprime auto loans, but these risky products are more commonly associated with independent finance companies and buy here, pay here (BHPH) dealerships.
The below table compares which types of lenders may approve auto loans for different credit risk categories:
| Lender Type | Risk Category | Credit Score Range |
|---|---|---|
| Banks | Nonprime, prime, and super prime borrowers may receive financing from banks | 601–850 |
| Credit unions | Nonprime, prime, and super prime borrowers may receive financing from credit unions | 601–850 |
| Buy here, pay here dealerships (BHPH) | Deep subprime, subprime, nonprime, prime, and super prime borrowers may receive financing from BHPH dealerships | 300–850 |
| Independent finance companies | Deep subprime, subprime, nonprime, prime, and super prime borrowers may receive financing from independent finance companies | 300–850 |
| Captive finance companies affiliated with auto manufacturers | Subprime, nonprime, prime, and super prime borrowers may receive financing from captive finance companies | 501–850 |
What Documents May Be Required for a Car Loan?
In general, expect lenders to require the following documents:
• Proof of identity
• Proof of income
• Proof of residence
• Vehicle documentation
• Proof of insurance
Lenders will also likely have credit score parameters, as well as standards for what’s required in a down payment. While there’s no set credit score you’ll need to get an auto loan, borrowers with good or excellent scores (in the mid 600s and up) tend to have an easier time obtaining a loan and securing better rates.
Auto Loan Requirements: Proof of Identity
A requirement for a car loan you’ll need to meet is providing proof of identity. These are the types of documentation lenders will likely accept to confirm that you are who you say you are:
• Government-issued IDs
• Passport
• Birth certificate
Auto Loan Income Requirements: Proof of Income
As part of the requirements for getting a car loan, a lender will typically require you to prove how much income you earn to ensure that you make enough to qualify for the loan. While there’s no required income to get a car loan, a pretax monthly income of at least $1,500 to $2,500 can serve as a general guideline.
Ways to prove your income include providing the following:
• Bank statements
• Wages and tax statements
Note that no income verification auto loans do exist, but you’ll typically be required to have a cosigner or put up collateral to secure the loan.
Requirements for Getting a Car Loan: Credit History
Credit score requirements for auto loans can vary by lender — and it’s generally true that the higher the score, the better the chance that you’ll get a good interest rate with favorable terms. Overall, a lender wants to see that you’ve handled your debt well in the past because that’s a good predictor of how you’ll manage it going forward.
If your credit score isn’t quite where you’d like it to be, be prepared to share with the lender how and why it happened, along with your plan for making your car payments on time in the future. Sometimes, a lender will require you to get a cosigner with good credit before approving the loan.
Recommended: Guide to Finance Charges on Car Loans
Auto Loan Requirements: Proof of Residence
Lenders will want to verify where you live, and there are numerous methods they might find acceptable, including:
• Utility bills
• Government-issued IDs
• Property tax bills
Vehicle Information
When buying a car, your lender of choice will need information about the vehicle, including the purchase agreement from a dealer or person. Key pieces of information within the document will include the price; the make, model, and year of the vehicle; and its vehicle identification information (VIN), among other things.
Current Vehicle Registration
A vehicle must be registered in the name of the current owner for it to be legally driven on public roads. If you buy a car from a dealer, new or used, they usually provide you with at least a temporary registration; other times, they’ll handle the whole process. If not, you’ll need to check with your local Department of Motor Vehicles (DMV) to see how to transfer the registration into your name.
Requirements for Auto Loan: Proof of Insurance
Your lender will want to see that you’re able to get insurance coverage on the vehicle you’re buying. What’s required can vary, based on the state in which you live and the specific requirements of the financial institution. In general, however, you’ll need to have car insurance on your new ride before you can drive it out of the dealership lot.
Proof of insurance can include:
• Insurance ID cards
• Coverage letters
• SR-22 form
Method of Down Payment
As part of a lender’s car loan requirements, you may need to make a minimum down payment. This can include a combination of cash that you’ll put down and the trade-in value of a vehicle that you’ll turn over to the dealership.
How much of a car down payment should you make? The traditional answer has been 20%, but not everyone puts down that much. To answer this question for yourself, find out what a lender requires and also consider your finances and how they may change over the next several years (meaning, over the term of the car loan).
Recommended: Grace Period for Car Payments
Auto Loan Refinance: Documents Required
With an auto loan refinance, a lender will typically want the same information that was needed for the original loan, along with information about your current loan, including the lender and outstanding balance. That said, check with your lender of choice to make sure that you have all of the documentation required.
Keep in mind that refinancing for a lower monthly payment may extend your term, and extending your term can saddle you with more interest charges over the life of your loan. An auto loan refinance calculator can help you see whether a refinanced loan offer may increase or decrease your total interest costs.
Lenders can implement their own requirements for auto loan refinancing, too, and some lenders may even offer low credit score car loan refinancing.
4 Tips for Auto Loan Approval
Getting approved for a car loan can be challenging, particularly if you have bad credit. There’s no guaranteed path for how to get approved for a car loan, but these four tips may help:
1. Choose a Budget
You may choose a budget that works for you when seeking auto loan financing. This can include identifying a target purchase price for a new or used car and sticking to the budget.
2. Have Steady Income
Having steady income from salaries, wages, or any other source can help you get approved for a car loan. Lenders may assess your debt-to-income ratio when deciding whether to approve or deny your loan application.
3. Buy a Newer Car
Buying a newer car may help you get approved for financing as opposed to buying an older vehicle. Some lenders, for example, may deny financing a 10-year-old car or a vehicle with more than 100,000 miles on the odometer.
4. Make a Larger Down Payment
A larger down payment may prevent you from getting an upside down auto loan in which your loan balance is greater than your car’s resale value. It’s generally better to have positive equity in your car rather than negative equity that leaves you underwater. A larger down payment can minimize your borrowing expenses and monthly car loan payment, which lenders may take into account when making financing decisions.
Recommended: Guide to Financing a Car Out of State
More Auto Loan Refinancing Tips
Auto loan requirements can vary by lender, but most will want to see verification of your identity, income, residence, and auto insurance, along with additional information about your financial situation, your credit history, and the vehicle being purchased.
When refinancing a car, similar information is typically needed, along with details about the outstanding loan on the vehicle. It can be wise to pull these documents together as you start the process to make things move ahead more quickly and smoothly.
The Takeaway
Applying for and getting approved for an auto loan can involve several steps, including knowing your credit score and other financial details and being able to provide such documents as proof of identity, proof of income, proof of residence, vehicle documentation, and proof of insurance. As you gather these materials, you’ll also want to shop around for the most favorable rates and terms you can secure.
If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.
FAQ
What is required to get approved for a car loan?
Requirements for car loans may vary from lender to lender, but borrowers generally need to provide proof of identity and proof of income to get approved for a car loan. Lenders may also require borrowers to provide proof of residence, proof of auto insurance, and basic information about the vehicle being financed.
What credit score do you need to qualify for a car loan?
Getting approved for a car loan may not require good credit. Consumers with bad credit may also qualify for auto loan financing, including deep subprime borrowers with credit scores between 300 and 500. Borrowers with bad credit can get approved for auto loan financing, but typically will be charged a high interest rate since they appear risky to lenders.
Can you get an auto loan with a credit score of 500 or less?
Yes, you may qualify for auto loan financing with a credit score of 500 or less. Keep in mind, though, that you likely will be offered less favorable interest rates or terms than if your credit score were higher.
Photo credit: iStock/Tero Vesalainen
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