You know you want to buy a car, but you don’t have the cash to buy it outright. You are going to need some financing. What do banks and/or dealers look for when giving you financing?
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Basically, lenders want to know that you can afford the loan today and for the foreseeable future. They want to know that you have a good
credit history and that you have stable employment. Below we tell you in detail what you should expect.
What Lenders Look At
First, you should know what factors lenders look at when deciding if you qualify for a loan.
- Credit score – Lenders like high credit scores. It shows financial responsibility. There isn’t a specific credit score you must have in order to qualify, though. Basically, the higher your score is the more money lenders will be willing to lend. You may also secure
lower interest rates with a higher credit score.
- Debt ratio – Lenders need to know how much of your monthly income is already spoken for each month. In other words, how much existing debt do you already have? What will the new car payment do to that ratio? Is it affordable?
- Down payment – You don’t have to put money down on a car, but it can certainly help your situation. The more of your own money that you have invested, the higher your chances of securing decent terms on your auto loan become.
- The term – How long will you borrow the money? The shorter the term, the better the deal a bank/dealer can provide. Car loans can go as long as 7 years in rare cases, but typically, you want to stick between 3 and 5 years.
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The Necessary Documents
Now you know what car dealers and lenders look for when providing car loans. Next, you need to know how to prove these things. You’ll need the following documents:
- Paystubs – This proves your current income and lets lenders see your YTD income as well.
- Bank statements – If you plan to make a down payment in cash versus a trade-in, you’ll need to provide your bank statements proving that you have the money.
- ID – Lenders need to see proof of your residency, as they’ll use this address to pull your credit and qualify you for the loan.
- Title to your car – You can’t trade in a car that doesn’t legally belong to you. You’ll need to supply proof with a title and/or registration that the car belongs to you.
Qualifying for a car loan usually only takes a matter of hours or days, if you have a unique situation. Underwriting is usually quick and lenders or dealers are able to give you an answer right away. If they have questions about your situation, it may slow things down, but the more documents you can provide upfront, the quicker the process will go for you.
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