Qualifying for an auto loan can be a tricky process with a lot of moving parts. While having a good credit score can go a long way in helping you secure an affordable loan, there are other criteria that lenders use to determine if your application will get approved or not.
Here are a few things you need to have in place to qualify:
Good Credit, Good Credit, Good Credit!
Having a good credit score is essential to get approved for an auto loan. Lenders usually follow the FICO® Score. A good score generally falls in the range of 670 to 739, but the higher your score is, the better your chances are of getting approved.
Lenders may approve your auto loan application even if you have a less-than-ideal score. Although, that may mean a higher rate of interest and the need for a co-signer. Lenders who specialize in working with applicants with bad credit scores usually give more expensive loans. Check your credit score before you apply.
A Stable Source of Income
Having a steady income proves to lenders that you are capable of meeting your monthly payments on time. Depending on the lender’s requirements and your employment status, you will have to provide one or more documents along with your application. Speak with the lender at an early stage and find out what documents you will need later on.
Identity and Residence Proof
You might not need to provide these documents if you plan on getting a loan from a bank where you already have an account. But if you are approaching a lender for the first time, you will be required to provide a government-issued ID and proof of residence.
A Pre-Approved Loan
If you aren’t sure about your eligibility, ask the lender to put you through the preapproval process. This allows them to run a soft background and credit check, review your credit report and give you a fair idea about your chances of getting approved. It can also help you understand what kind of interest rates you can expect. If you don’t pass the preapproval process, you can save up on time and work on fixing your credit score.
Trade-In or Down Payment
Trading in your current vehicle or making a down payment can bring down your loan amount significantly, making it easier to get approved and gives you a lower interest rate.