How To Get A Car Loan

Jason Tushinski
Apr 27, 2022 · 10 min read
A great credit score is the single best tool at your disposal if you’re looking to snag a car loan with low interest rates.
Once your credit is on the up-and-up, shop around. Great interest rates don’t grow on trees, so do some legwork and see where you can find the lowest rate.
Instead of calling around and requesting quotes, download Jerry.
Jerry’s loan comparison tool can help you make sure that you’re paying the least amount of interest for the best terms! This intelligent, AI-based app is the fastest, most accurate way to comparison shop for loan options—and you won’t have to spend time making calls.
Keep reading to find out everything you need to know about getting a car loan.
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Check your credit before getting a car loan

A high credit rating will go a long way towards getting a car loan with low interest rates.
Your income will also play a role in what kind of auto loan offers you qualify for.
So, if you’re thinking about getting a car loan, check your credit.
If there are any errors in your credit history, get them fixed quickly—you could get turned down for a loan or offered a higher interest rate if there are questions about your credit.
Not sure how to check your credit? You are entitled to one free credit report per year from one of the major credit reporting firms. You can also view your credit report for free through your bank or credit card company.
A final note about your credit—if it's below 600, you should wait before seeking out that car loan. Lower credit scores mean higher interest rates.
If you can, wait six months to a year and make sure you meet all your financial commitments on time. Your credit will improve, and you’ll qualify for a car loan with a much better rate.
Credit ScoreAverage APR, new carAverage APR, used car
Subprime, 781-8503.65%4.29%
Prime, 661-7804.68%6.04%
Non-prime, 601-6607.65%11.26%
Subprime 501-60011.92%17.74%
Deep Subprime, 300-50014.39%20.54%
Source: Experian Information Services
Key takeaway If your credit score is below 600, it’s a good idea to build your credit before applying for an auto loan so you qualify for lower interest rates and better loan terms.

Shop for a car loan lender

Shopping around is the best way to find competitive rates and good terms.
National banks, credit unions, local and community banks, online lenders, and dealerships all offer car loans. Your existing bank or credit union might offer a "preferred rate" for a car loan, so be sure to inquire.
When you’re looking for a lender, it’s important to keep in mind—some car loan lenders won’t allow a borrower to buy from a private seller. If you want to go this route, be sure to ask the lender if they’re ok with it.

Some terms to know when you’re searching for a car loan

APR: Annual percentage rate refers to the interest and lender fees you pay when you take out a loan.
Loan terms: This is the amount of time the borrower has to pay off the loan. For new cars, your loan shouldn’t exceed 60 months. For used cars, avoid anything over 36 months.
Down payment: The amount of money you can pay now towards the car, reducing the overall amount you owe for the rest of the loan’s term.
Taxes and fees: When buying a car, you might be on the hook for other taxes and dealer fees, so be sure to inquire.

Get preapproved for a loan

After you’ve narrowed your search to a few lenders, you’ll want to get preapproved for a car loan. Applying to multiple lenders gives you the best chance to score the lowest interest rate.
When you’re preapproved for a loan, as opposed to being prequalified, you get a much more specific interest rate offer. This will allow you to think about a budget and how much you can afford before you walk into a dealership.
Being preapproved will allow you to focus on the price of the car, instead of haggling with a salesperson over a monthly interest rate.
To apply for preapproval, you’ll have to hand over your personal details, social security number, salary details, and other financial information to potential lenders, who will weigh your application.
Apply to all the preapproval lenders you’re eyeing within one 14-day period. These applications will result in a hard check on your credit, and will slightly reduce your overall score—not to worry, this is routine.
Key takeaway Applying to all potential lenders within this 14-day window will ensure only one hard credit check is performed against you.
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Prepare a budget for your car loan after preapproval

Not only will preapproval give you some peace of mind (and a bargaining chip) when you walk into a dealership, it will allow you to plan your car budget.
If, for example, you’ve been preapproved for a $20,000 loan, this is the most money you can borrow. It doesn’t mean you have to use the whole amount.
You’ll need to pay taxes and fees on top of the purchase price. So if you find the perfect car for $15,000, your loan will cover the price of the car as well as taxes and fees, with some cash to spare.

Choose a car to buy

Now it’s time to pick out your new ride.
Before you set your heart on a vehicle, be sure to check your loan offers for conditions. Some lenders exclude certain brands of cars, such as electrics, or The Batmobile, from funding. Read the fine print of your terms.
A lender may also specify certain dealerships you can shop at, and they may set a time limit on how long you have to use the loan.
Lastly, if you’re looking to buy from a private seller, check with the lender first.

Your preapproved loan offers vs. your dealer

When a car dealer finds out you’re pre-approved for a car loan, they will most likely try to beat the interest rate by offering you a loan through the dealership.
Car manufacturers set up their own financial institutions through their dealerships, and they often offer below-market-rate loans to garner your business from other lenders.
If the dealer is willing to honor the terms and conditions of your preapproved loan offers with a lower interest rate, consider it. If there aren’t any hidden fees or extras in their offer, you might have found yourself a great deal.
If the dealer tries to offer you an extended loan, watch out.
You may be tempted to take a loan with a longer term and lower monthly fees, but your interest rate will be higher.
Just remember— you’re allowed to ask questions, and you’re allowed to say no.
If you don’t like their offer, stick with your preapproved loan offer. If the salesperson gets pushy, walk away. There are plenty of other car dealers who will happily honor a preapproved car loan.
Key takeaway A dealership could potentially offer you better loan terms at a lower interest rate—so keep an open mind when shopping for your loan.

Choose a car loan to get

Now, it's time to pick your loan. Whatever you choose, do your due diligence, especially if you opt for a dealer loan over one you’ve been preapproved for.
When picking your loan, here are a few things to watch out for as you scroll through a loan contract before signing.

Hidden fees

Along with the price for the car, expect to pay a sales tax, documentation fee and registration costs. If any additional fees are in the contract, be sure to ask the dealer about them.

A longer loan term

Depending on your interest rate, an increase of just 12 months can significantly add to what you’ll pay. Be mindful of a dealer dangling a low interest rate in front of you while tacking on more term length to your loan.

Surprise add-ons

Is gap insurance listed in the contract, despite your dealer never uttering those words to you before? You can get add-ons like that elsewhere for less.

Early payoff penalty

This is a penalty for paying your loan off early. Most lenders don’t include early payoff penalties, so ask about this if you see it in the contract.
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Pay your car loan payments on time

We’ll say it twice because it’s so important—pay on time. It is imperative you make your monthly car loan payments on schedule. This will do wonders for your credit score.
If you automate your car loan payments, there is always the chance that your interest rate might be lowered over the term of your loan.

Jerry’s car loan comparison tool

You deserve a loan package that works for your budget and the confidence that you’re getting the best deal on your auto loan refinance.
There’s just one way to get both: Jerry. This intelligent, AI-based app is the fastest, most accurate way to comparison shop for loan options—and you won’t have to spend loads of time making calls.
Let Jerry compare rates and find out how much you can save on your loan. As an AI-powered broker, Jerry gives you all of the savings and coverage with none of the hassle—and it’s totally free to compare quotes.
Jerry can also make sure you aren’t overpaying for car insurance. In fact, the average driver saves $879 on car insurance a year when they use Jerry!
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Why is a preapproved loan better than a prequalified loan?

Even though applying for a preapproved loan generates a "hard check" on your credit, these loan offers will provide much more certainty about the interest rate you’ll pay if you choose this kind of loan.
With a prequalified loan, at best you’ll get an idea of the interest rate you’ll pay before being approved, in comparison to the more specific preapproved loan.

How long is too long for a car loan?

If you’re looking to buy a new car, look for a loan no longer than five years. The monthly payments won’t be exorbitant, and the car will likely remain in good shape, so long as you’re taking good care of it.
For a used car that has been well looked after, stick with a loan term no longer than about 36 months. This way, if the car breaks down and isn’t worth repairing, you’re likely to have paid most of the loan off by the end of the term.
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