Auto Loan Basics: Essential Things You Need To Prepare

If you’re planning to take out a car loan, it would be best to prepare all of the necessary documents that might be required to ensure quick processing. Typically, lenders will do their best to assess whether you’re a credit risk and if you can pay back the total loan amount based on the terms you’ve agreed upon.

In addition, the information you’ll provide, together with your credit score, will be used to determine the interest rate on your loan.

Auto Loan Documentation Checklist

When taking out an auto loan, the requirements vary by lender. However, your credit score, as well as your credit history, are significant factors lenders usually look at. Several lenders list their requirements on their websites, where you can also upload necessary documents, like payslips or driver’s licenses, during your loan application.

To know more, here are standard documentation requirements lenders tend to ask from an auto loan borrower:

Proof of Identity

Following the law, lenders are required to verify a borrower’s identification. Typically, lenders will ask for proof of identification, such as your US visa, passport, driver’s license, or any other government-issued ID showing your face and name.

Meanwhile, in some cases, lenders tend to verify your identity without asking for any document through a third-party source like a consumer reporting agency.

Proof of Income

One of the most crucial factors lenders evaluate during loan application is your ability to repay the loan. They check your credit history, monthly income, and monthly expenses. Thus, when applying for a car loan, it’d be best to prepare your payslips, bank statements, and any other proof you may have.

Sometimes, lenders will call your employer to confirm your income and employment status. However, if you’re self-employed, lenders would require you to submit tax returns. This document will determine how much your gross income is, which will be used during the application process.

If you want to boost your chances of getting a car loan, it’s also recommended to show proof of additional income sources. In addition, it can help you get favorable loan terms and interest rates. So, prepare some proof if you have any income from Social Security, legal settlements, rentals, and the like.

Credit and Banking History

Lenders will require you to provide your name, address, birth date, and Social Security number for them to pull your credit. However, when it comes to evaluating your credit, it’s crucial to know that lenders might use different credit scoring systems, such as FICO auto scores.

Proof of Residence

Like proof of identity, federal law also requires lenders to ask borrowers for their proof of residence. If the document you submitted for proof of identity also reflects your residence, then it’s okay.

However, if you’ve moved to a new place lately, you might need to submit any supporting documents to prove that. These might be any of the following:

• Mortgage statement
• Utility bill
• Lease agreement
• Property tax bill
• Homeowners’ or renters insurance policy
• Medicare or Medicaid benefit statement
• Credit card or bank statement

Crucial Factors You Need To Think About

Before applying for a car loan, you should consider the following factors:

Know Your Budget

Determine how much you can afford before getting an auto loan. Doing so can help you avoid missing payments due to the unavailability of funds. Plus, the lender will ask you about your budget before you proceed with the loan application process.

Check Your Credit Score and Reports

As mentioned earlier, the lender will assess your credit scores and reports before you can take out a car loan. So, it would be best to look at yourself first to know where you stand.

If you have poor credit, it’s vital to remember that you might not get low-interest rates and favorable terms. However, since you’ll be checking your credit in advance, you still have time to improve it. Also, if you have excellent credit, you’ll have better chances of getting a car loan that best fits your needs.

Shop Around

Loan terms and interest rates vary by lender. Thus, it would be best to shop around and compare to know which one is best. In addition, you can compare lenders’ offers by collecting quotes from at least three different lenders. You can get a car loan through a bank, credit union, dealership financing, and online lenders.

To Wrap It Up

Lenders need to ensure that you can repay them the total loan amount without any problem. And you can prove this by showing them proof that you can. It would be best to prepare all the necessary documents that a lender might require you to submit, especially if you want a quick process time.