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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.
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 pre-tax monthly income of at least $1,500 to $2,000 can serve as a general guideline.Ways to prove your income include providing the following:
Pay stubs
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.Recommended: Car Loan Cosigner Requirements
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: How to Build Your Credit
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:
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).
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 125,000 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: How Much of a Down Payment Should You Put on a Car?
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. To compare offers from multiple lenders in the Lantern by SoFi network, just fill out one convenient auto refinancing application.
Frequently Asked Questions
What is required to get approved for a car loan?
What credit score do you need to qualify for an auto loan?
Can you get an auto loan with a credit score of 500 or less?
Photo credit: iStock/Saklakova
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About the Author
Kelly Boyer Sagert
Kelly Boyer Sagert is an Emmy Award-nominated writer with decades of professional writing experience. As she was getting her writing career off the ground, she spent several years working at a savings and loan institution, working in the following departments: savings, loans, IRAs, and auditing. She has published thousands of pieces online and in print.
