, but understanding your financial situation, taking advantage of first-time buyer programs, and considering a cosigner can help ensure you get approved for the best auto loan rates.

Your eligibility for a car loan will depend on factors like your credit score, vehicle details, and debt-to-income ratio.
Some lenders offer first-time car buyer programs to help buyers with no or little credit history qualify for a car loan.
Understanding your credit and finances is an important first step in the car-buying process.
A cosigner may be able to help you secure the best rates on your first auto loan.

Are you eligible for a car loan?

Lenders consider you a first-time buyer if it’s your first time securing a loan to purchase a vehicle. First-time car buyers are usually between the ages of 18 and 24—but not always.

Your eligibility for a loan will be based on:

Credit score and history: A lower credit score usually means a higher

interest rate

—and vice versa

Vehicle specifics: Lenders usually assign higher interest rates to older, high-mileage vehicles

Loan term: Longer terms usually come with lower monthly payments but a higher interest rate

Loan-to-value (LTV) ratio: The amount you want to borrow divided by the value of the vehicle—a high LTV usually means a high interest rate

Debt-to-income (DTI) ratio: Your monthly debt payments divided by your gross monthly income—a high DTI usually means higher risk and higher interest rates

Where to apply for a first-time car loan

Some institutions have programs for first-time borrowers. Here are a few good places to start your loan search.

Credit unions: Many credit unions offer programs that make buying a car easier if you have poor credit or a lower income. You’ll need to be a member of the financial institution before you can apply.

Online car dealers: Dealers like Carvana and CarMax partner with lenders that can help first-time buyers get a loan, though the terms may include high interest rates.

Captive lenders: Many car manufacturers have their own lenders. Financing through the dealership can be convenient and you might benefit from low interest rates or a vehicle rebate.

Marketplace lenders: Marketplaces allow you to compare multiple lenders and be matched with those most likely to approve your loan application.

MORE: How to get a car loan from a credit union

How to improve your chances of approval as a first-time buyer

Getting a first-time car buyer loan can be challenging for a few reasons:

Minimal credit or employment history: Without an extensive credit or employment history, lenders are less likely to give you low-interest rates or favorable loan terms.

Low credit score: Lenders typically target a credit score of 660 or more. If your score is lower, the lender may decline to offer you a car loan or offer you a loan with unfavorable conditions.

Lack of savings: Larger down payments of 10% to 20% on a vehicle can get you more favorable loan conditions since you require a smaller loan amount.

Inexperience with lenders: Some lenders can be pushy with add-ons and

extended warranties

. Don’t let inexperience force you into a bad loan.

But there are some steps you can take to increase your chances of getting approved for a loan:

Check your credit report: If you have a

good credit score

—above 660—you’ll likely get approved for a car loan with lower monthly payments and competitive rates. With any score below 600, you could be subjected to higher interest rates—or even get rejected if your credit score is in the 500 range.

Calculate your DTI ratio: Add up all your monthly bills and divide the total by your gross monthly income. Lenders look for a DTI of less than 50%—and prefer that your monthly car loan payment is no more than 10% of your income.

Get preapproved before you start shopping: Preapproval doesn’t guarantee loan approval or loan offers, but it helps you understand what you can afford based on your credit profile. Getting preapproved usually just requires a simple online application. You’ll get quotes from several lenders and have some negotiating power with the lender you select.

Consider a cosigner: When you sign on for a loan, you’ll add another liable name to the paperwork. If you fail to make payments on the loan, the

car loan co-signer

will be held responsible. Lenders may be willing to offer better loan terms—especially if you have bad credit or limited employment history. If you’re under 18, you must have a parental co-signer.

Keep in mind: It benefits the dealership to sell you the car. Be patient and advocate for yourself throughout negotiations. It’s easy to jump at the first qualified offer you receive as a first-time buyer, but it's important to get quotes from several lenders and find the one that works best for your long-term finances.

Be aware of lenders trying to package unnecessary add-ons and over-extended warranties into your car loan agreement.

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FAQs

What’s the best down payment for a car loan?

If you’re buying a used car, aim to put 10% of the total purchase price as a down payment. If it’s a new car, aim for 20% down.

If you’re unable to make a down payment of this size, pay as much as you can afford without compromising your financial health.

What is a good APR for a first-time buyer?

Interest rates for car loans tend to hover around 7% to 13% for buyers with good credit. A large down payment and shorter loan term might get you a better rate, while poor credit and a long loan term might result in a higher one.

What credit score do you need to finance a car for the first time?

Lenders generally look for a credit score of at least 600-660. The better your credit score, the more favorable your loan terms will be.

If you have poor credit, you might need to look for a

bad credit car loan

—which will come with a higher APR (annual percentage rate).

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