Even if you have been prequalified or preapproved for a car loan, you haven’t yet crossed the finish line to receive your funds. Lenders check your application and credit and delve into other details as they move toward finalizing a car loan.
Fortunately, getting a loan deal is possible very soon after you apply. You’ll not only need to come prepared, but you’ll want to know what a good rate looks like and whether you’ll actually get the rates as they’re advertised.
Key Points
• The car loan approval process can take minutes to over a week, depending on the lender and the borrower’s details.
• Dealerships may finalize car loans faster than some financial institutions and private lenders, which could take up to a week.
• A high credit score and low debt-to-income ratio may lead to faster loan approval and better interest rates.
• To help avoid delays, submit all required documents, apply early, and ensure the vehicle meets lender requirements.
• If denied a car loan, consider alternative lenders, adding a cosigner, or building credit before reapplying.
When Are Car Loans Finalized?
“How long does it take to get an auto loan?” People wonder. The answer is, car loans are finalized once the loan process has been completed.
• When your initial application is sent to a lender, you begin the process of qualifying for an auto loan. If you settle on an offer they preapprove you for, then you still have to wait for them to close the deal.
• When you are getting a car loan, the term “finalized” means the lender has reviewed your documents, re-pulled your credit, and made sure nothing changed in your credit history (such as applying for a credit card) since the preapproval was initially gained. During this process, the lender can keep the initial deal on the table, change the conditions of the loan, or deny the loan.
• Once a car loan has been finalized, it can officially move ahead to the disbursement of funds.
• After taking the loan, consider the process of refinancing a car loan to lower your APR (annual percentage rate). You might want to wait 60 to 90 days from the original loan to allow the vehicle title to transfer or even longer to build your credit score for a chance at better rates.
Recommended: Calculate APR of Car Loan
How Long Does It Take to Finalize a Car Loan?
Typically, it takes a few days to finalize car loan financing. In some cases, it can happen in just a few seconds. Nevertheless, precisely how long it takes to finance a car varies among lenders.
In general, dealerships tend to finalize car loans quicker than online lenders, while banks and credit unions are known to take the longest. Purchasing a car through a private seller as opposed to a dealership may also extend the time it takes to finalize the loan. The difference in timing could range from less than an hour at, say, a dealer eager to make a deal, to a week or more when working with a local financial institution.
Remember that a faster process isn’t always better for your wallet. For example, dealerships are known to charge higher auto loan interest rates than banks and credit unions, and those with better credit scores tend to get better interest rates.
In the third quarter of 2024, auto loan statistics showed that borrowers with superprime credit scores had an average APR of 5.08% on a new car, and those with deep subprime credit scores had an average interest rate of 15.43% on a new car. That said, though, there’s more to know about car loans before you accept a finalized deal.
Recommended: How to Sell a Car You Still Have a Loan On
Car Loan Underwriting Process
Some lenders will conduct an underwriting process in order to approve it for financing. The time frame it takes auto loan underwriters to review and approve a car loan depends on who you choose to apply with, the amount you need, and your creditworthiness. To help you understand how long this process could take, here’s an overview of the stages of your loan.
• Submit the application: The first thing that needs to happen is for an application to be submitted. You can complete it online or in person, and it usually takes 10 to 15 minutes to complete if you have all of the required documents.
• Preapproval response: Some lenders respond immediately with a preapproved deal for an auto loan, while others need a few days to get back to you. Aim to get qualified with multiple lenders to compare rates, and do it within a 14-day period to minimize the impact on your credit. Although preapproval requires a hard pull of credit, having multiple lenders request your credit in a short time frame will only count as one pull since it’s recognized that you are rate-shopping.
• Full approval: The approval process varies in length of time. Many lenders will approve the loan on the same day, depending on what time of day it is when you applied. Some lenders may require a few days for processing.
• Loan funding: Once you’ve received full approval from a lender, you will typically get your funds within one to three business days, though it’s a good idea to check with your lender.
What Can Slow Down the Application Process
If you want to speed up the application process, make sure you avoid these bottlenecks.
• Not submitting all required documents: Every loan application is unique. You’ll likely need two valid forms of identification, proof of income documentation, and your Social Security number. Check with your lender to see their exact requirements.
• Applying late in the day: Some lenders offer same-day approval, but processing could be delayed if you apply outside of business hours or on a weekend.
• Not meeting vehicle requirements: Lenders often have specific requirements for both used and new cars to be considered eligible for financing. They need to know things like mileage, model, and year to be able to consider you for a loan.
Can a Finalized Car Loan Get Denied?
There are certain reasons why a car loan that was previously approved could get denied. Car loans most often get denied when lenders take a second look at you and your credit. Here are some factors that generally influence their decision:
• FICO® Score: The most common reason finalized car loans get denied is due to some facet of the applicant’s credit score. The lender may have added “with approved credit” to an offer, which means that they’ve reconsidered the offer due to something they found in an applicant’s credit report.
• History of bankruptcy: Generally, people get denied due to a bankruptcy that occurred less than two years before filing for the auto loan. In terms of getting approved for a car loan after bankruptcy, including the Chapter 7 and Chapter 13 bankruptcy exemptions, you may have to pay higher interest rates to get a loan.
• Payment-to-income ratio: A payment-to-income ratio is the monthly car payment divided by the monthly income of an applicant. Payment-to-income is an important factor for lenders, but they could make an exception if other areas of the application are deemed favorable.
• Debt-to-income ratio: A debt-to-income ratio is the amount of monthly bills on the buyer’s credit bureau divided by gross monthly income before tax. If an applicant can’t pay his monthly bills in addition to the proposed car loan, underwriters aren’t going to approve the loan.
If your car loan got denied (meaning you weren’t offered funding, even a higher-than-expected interest rate), you may still have options. You might benefit from looking for a loan from a different bank, credit union, online lender, or dealership. On the bright side, it could be an opportunity to find competitive rates.
If you aren’t having much luck getting approved, consider some workarounds.
• Your bank may allow you to add a cosigner. If this person has a positive credit profile, they could help you get approved. However, they will also be responsible for the loan’s repayment, so make sure you can honor your debt.
• Another alternative is to delay a purchase and build your credit using methods like secured credit cards.
• You might also see if a trusted friend or family member is willing to provide you a loan to help you snag a car.
Recommended: Which Credit Score Is Used?
The Takeaway
A car loan is typically finalized in anywhere from minutes to a week or more, depending on your specific situation and your lender. It’s important to know that the preapproval offer you get from a lender isn’t final until the lender says the loan is finalized and they can move ahead and disburse the funds. Be aware that lenders can change their minds, meaning the conditions of the final offer might look different than what was proposed during preapproval. It’s wise to shop around and know your options.
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
How long does it take to get a car loan?
The time frame of finalizing a car loan can vary from minutes to a week or more, depending on the lender you choose, the amount you need, and your credit score. You can speed up the process by making sure you have all of the correct documentation, filing for the loan early and on a business day, and by checking your eligibility for the car loan online.
What is the process to finalize a car loan?
After you’ve submitted your application and accepted the preapproval offer, underwriters take a closer look at your application and credit to finalize the car loan. Depending on the situation, you might get a finalized car loan as soon as the same day you applied or it could take a week or longer.
What are the reasons that a car loan is not finalized?
Factors typically involved in the underwriting process include specifications of the car, the down payment, your FICO score, income, debt, employment, and other information. If something doesn’t meet the lender’s expectations, they could deny an applicant’s finalized car loan.
Photo credit: iStock/Brenda Sangi Arruda
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