Couple purchasing a car with keys

How To Get A Car Loan In 4 Steps: A Complete Guide

Victoria Araj7-minute read
UPDATED: January 29, 2024


Buying a car is often made possible with the help of an auto loan, which tends to have a more competitive interest rate than a personal loan or credit card. In fact, the average interest rate on a 2-year personal loan is over 4% higher than the average rate on a 5-year car loan, according to the Federal Reserve.

Understanding how to get an auto loan and how to offer a favorable personal credit history can help you get the best deal possible when you buy your next car.

Before You Apply For A Car Loan

To secure an ideal loan offer, you should do some financial preparation – by taking the steps discussed in the subsections below – before you apply for auto financing.

Check Your Credit Report

Your credit score and credit report help determine how much you can borrow and at what interest rate. Not all lenders or lender types give each part of your credit report equal weight, but most auto lenders emphasize your auto loan payment history. You even have a specific auto FICO® Score that lenders look at to determine how likely you are to pay back the loan.

Your credit report shows you what lenders will see when they perform a credit check. If you have your report, you can also look for and correct any errors that may hurt your credit. Removing inaccuracies can improve your chances of getting a loan with favorable terms.

Checking your credit score can also give you a general idea of your prospective car loan’s annual percentage rate (APR), which is your interest rate plus some additional fees associated with the loan. A higher credit score typically means a lower rate.

If you know the average rates for your credit range, you can compare the rate you’re offered against the average.

Keep in mind, too: You’re entitled to a free copy of your credit report every week from each of the three major creditbureaus. You can order your report through

Set A Budget

Getting preapproved for an auto loan before you start shopping can be a great idea. Once you have a preapprovedloan amount, you can narrow down your car search to fit your budget. To account for fees such as state taxes, title transfers and financing fees, don’t forget to add 10% of the purchase price to your purchase amount on any vehicle you buy.

From there, and depending on the size of the down payment you plan to make, you can estimate the monthly costs of car payments, car insurance, gas and other car-related expenses. Just because you’re approved for a loan amount doesn’t mean it’s necessarily in your best interest to take it.

You should also consider your debt-to-income ratio (DTI) as you set a car shopping budget. Not only do lenders use this to help determine your ability to repay a loan, but it also tells you how much you spend each month on debt payments, such as student loans or a mortgage, compared to your monthly gross earnings. You can calculate your current DTI, and what your DTI would be with the addition of a new car payment, to evaluate how much you can afford to spend each month on car-related costs.

Ultimately, you understand your financial health and goals best. It’s up to you to establish a budget that won’t create financial anxiety that’s otherwise avoidable.

Save For A Down Payment

A down payment shows a lender you’re committed to paying back the loan so the lender will be more likely to loan you money.

The more money you put down, the shorter your repayment period will likely be since you’ll have less to pay back. A shorter repayment period can be ideal since cars are a depreciating asset and you don’t want to owe more on the car than it’s worth – a scenario known as being “upside down” on a loan.

A higher down payment can also make you a more appealing borrower, even with poor credit. The larger the down payment, the lower your loan-to-value (LTV) ratio, which is the amount of debt you have against the car’s actual value.A favorable loan-to-value ratio usually means a more favorable interest rate. You’ll also have lower monthly payments since you’re borrowing less money.

Calculate Your Auto Loan Payment

Please enter a purchase price between $100 and $100,000.
Please enter a down payment amount between $0 and $100,000.
Please enter a term between 24 and 84 months.
Please enter an interest rate between 0% and 30%.

Your Monthly Payment

Total Paid Over 60 Months

Total Interest Paid

Loan Balance Over Time

Please enter a value between $0 and $1,000.

... you'll save $0 in total interest

This auto loan calculator estimates a monthly payment based on the loan amount, term, interest rate and additional payments that you input. You can then change the loan amount, interest rate or repayment term to see different options. Calculated payments and savings are estimates only, as your actual rates and payments may differ from the estimates provided by this calculator as a result of qualifying factors. This is not a commitment to lend.

Where To Get A Car Loan

Each lender has its own advantages, so explore your options before choosing one.

Car Dealerships

A loan offered by a car dealership can be very convenient. You can pick a car, get financing and drive away on the same day.

If you’re interested in a dealership financing, getting preapproved by another lender can help you feel less pressured to accept the dealership’s loan offer. You may also get a better interest rate if lenders compete for your business.


Getting a car loan from a bank can be simple if you’re already in good standing with one and have an account. Call your bank and request to speak with a loan officer to learn which loan options they offer.

Banks usually offer competitive loan rates, especially for people with good credit. However, many banks restrict lending based on the type of car or purchase. This can be the case with electric cars, high-mileage cars, commercial vans or purchases from private sellers.

You may want to start your loan search with your current financial institution since they already have an idea of your financial situation. They may also give you a preferred rate, especially if you arrange automatic loan payments.

Credit Unions

Credit unions often have lower interest rates than banks since credit unions are nonprofit institutions. Their focus on community also means they may be more willing than other institutions to work with people who have poor credit. However, you have to be a credit union member to get a loan from a credit union, so you may need to do some research to find one you’re eligible to join.

Online Lenders

An online lender is the most convenient choice for a car loan. You can compare offers from multiple lenders without leaving your living room. In fact, you can even buy a car online, finance a car online and have it delivered to your door.

If you decide to get a loan through an online lender, be sure to read customer reviews first. Always check for complaints on the Better Business Bureau and Consumer Financial Protection Bureau websites.

How To Apply For A Car Loan Step-By-Step

Once you have a grasp on the kind of car you can afford and your lender options, you can apply for a car loan. Here’s a quick step-by-step guide on how to do this.

1. Talk With Your Financial Institution

Start by talking with someone from the financial institutions where you plan to apply for a loan. Banks, credit unions and online lenders will discuss loan options with you before you choose a car.

In the early stages, the lender will likely request the following:     

  • Proof of income
  • Employment history
  • Proof of residence
  • Credit history
  • Down payment amount

Make sure you understand the details of the loan. Ask about additional fees, such as early-payment fees, how much time you have to use the loan and if any car types or sellers are excluded.

2. Get Prequalified And Preapproved

Although prequalifying doesn’t guarantee you’ll be approved for a loan, it helps with planning and gives you negotiating power at the dealership. Shop around to understand the different rates that lenders may offer.

Prequalification lets you compare potential loan offers without requiring a hard credit inquiry, which can temporarily lower your credit score. Since lenders have limited information about your credit with a prequalification, it provides a less concrete idea of the rate and term you may actually qualify for.

Preapproval, on the other hand, does require a hard credit check. However, if all the inquiries are in a 2-week period, reporting agencies count it as a single inquiry, so your credit score won’t be lowered by every preapproval. Lenders have access to more of your information at this stage, so the estimate you receive with a preapproval may be closer to your actual loan offer.

Getting prequalified – as opposed to preapproved – with as many lenders as possible can help limit the number of hard pulls on your credit report. Then, with the information you uncover by prequalifying, you can choose which lenders are worth getting preapproved with.

More specifically, you can apply for preapproval with the lenders that offered you the best terms and rates.

3. Compare Lenders

As you consider potential loan options, compare interest rates and payment terms first. The loan with the lowest monthly payment option will likely cost you the most money because it’ll likely be the loan with the longest repayment period, which means you’ll pay more in interest over time.

Be sure to also be on the lookout for any prepayment penalties, hidden fees and add-ons you don’t need.

Just remember: If you’re not offered a loan with the interest rate, amount and payback period you’re hoping for, you can take some time to improve your credit score and/or save for a higher down payment in order to get a more competitive loan offer.

4. Choose A Lender And Agree To The Loan Terms

Once you compare your preapproval offers, you can choose to formally apply with the lender that offered the best loan for your situation.

Once you’ve received final loan approval, which is virtually guaranteed if you’re preapproved, you can move toward finalizing the loan.

Before finalizing the loan, a lender will need vehicle information and proof of car insurance. Once the lender has this and any other information they may request, you can sign the loan agreement contract.

After you and the lender finalize the loan, all that’s left to do is wait for the lender to send you your loan money. When you receive these funds, the repayment period begins.

Be sure to keep up with your car payment schedule. Making regular, on-time payments is extremely important to keeping your car loan – and your credit – in good standing.

The Bottom Line

Lenders want to work with borrowers who have a financial history that makes them highly likely to repay their car loan without any issues. This being the case, good financial health is key to being approved for a car loan and landing a desirable interest rate. Take the time to fix any errors in your credit report and save for a big down payment that provesyou have the bandwidth to take on a car loan as an extra monthly expense.

You also don’t need to necessarily go with the first loan you’re offered. Instead, get prequalified by various lenders to narrow your search and find the most suitable loan offer for your needs.

If you think a personal loan is the right financing option for your car purchase, start an application today to get prequalified with Rocket LoansSM.

Personal Loans Any Time, Any Place.

See your prequalified offers in seconds.

Victoria Araj

Victoria Araj is a Section Editor for Rocket Mortgage and held roles in mortgage banking, public relations and more in her 15+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.