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How does buying a new car work if I need a car loan?
I want to buy a new car, but I have no idea how a car loan works. What do I need to know about buying a car with a loan?
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Understanding a
car loan
is tricky if you’ve never had one before, but it’s not as complicated as it might seem! A car loan works like this: a lender lets you borrow the money for a new car with the agreement that you pay them back with interest. However, whether you’re approved for a loan is highly dependent on your creditworthiness. Lenders determine credit primarily through three aspects:
- Your credit score
- Debt-to-income ratio
- Income stream
In general, you need to have a credit score of around 660 or better, income of at least $1,500 a month, and a debt-to-income ratio of 43% or less (the amount of debt you pay each month compared to your monthly income).
In some cases, you may also qualify for a car loan with a lower credit score, but it may require a cosigner or signing a subprime loan, which means that you may have to get a loan with a higher interest rate.
More than anything, make sure to shop around for the best car loan interest rates so you don’t leave money on the table. In addition, you will need full coverage car insurance to drive the car off the lot. To get the best deal on the coverage you need, check out the
Jerry
app—we’ll get you personalized quotes from top providers in seconds, so that all you need to do is pick the plan that works best for you.Hope this helps, and best of luck with buying your new ride!
View full answer
- Gregory R.
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