Do You Qualify?

Before you start to browse for a new vehicle, it’s smart to find out whether you qualify for an auto loan, and if so, for what amount. The lender will determine the amount you can borrow based on your current financial situation. Knowing how much you can borrow can help you look at realistic options. Shop around for the best loan before you head to the dealership. Your credit union or bank offers auto loans that may provide you with a better deal than what the dealership may offer.

Here is a look at what lenders deem important when considering candidates for auto loans:

  • Down payment: You may get a more favorable rate if you contribute some money upfront toward a vehicle’s purchase price. Down payments on cars can vary. They can be as low as five percent of the vehicle’s purchase price.
  • Credit score: Your credit score reflects your credit history. For example, do you pay bills on time? Is your debt burden high? Have you filed for bankruptcy? A credit score of 700 or higher will generally get you a lower interest rate on your loan. A credit score of 600 or lower may result in a much higher interest rate.
  • Proof of income: Before a lender loans you money, they want to make sure you’ll be able to repay the loan. You may have to provide a lender with a recent pay stub or bank statement to verify your income.

Tips and Strategies

These tips can help you get the best possible loan rate and save money on your purchase:

Know Your Credit Score
It’s always a smart idea to review your credit report before making a major purchase, like a car. If your credit rating is low, you might want to hold off on the purchase until you can improve it. If it’s in the middle or high, you can leverage your good history of paying debt on time to negotiate for a better loan.

Benefit from Existing Relationships
Some credit unions (such as Navy Federal) consider their existing relationship with you and your banking history when making the decision to extend a loan. That means you may still qualify even if your credit history is short or below what is usually required.

Shop for the Best Rate
Credit unions, banks and some dealerships provide financing for car purchases. If you know exactly what car you want, a credit union or bank may pre-approve you for a loan. A pre-approval means you’ll know in advance the price you’ll be able to afford, as well as the amount of your monthly car payments, including the interest rate.

Save for a Down Payment
The more money you can put toward a car purchase, the less you have to borrow. Plus, a higher down payment shows the lender that you can manage your finances by saving money. 


If you don’t qualify for a car loan due to a poor or insufficient credit history, you might ask someone such as a family member to co-sign the loan with you. A co-signer takes on equal responsibility for the loan. In other words, if you fail to make payments, the co-signer is legally responsible for making those payments for you. Because it’s a lot to ask of someone to put their credit on the line, consider these factors first:

  • Can you afford the monthly loan payments? Review your debt-to-income ratio to make sure you have enough funds each month to pay your monthly bill. It’s better to choose a less expensive vehicle than to leave a loved one on the hook for your debt.
  • Can you set up automatic payments? If you miss a payment or are late, your credit score, as well as that of your co-signer, will be negatively affected. Find out from your lender if you can have funds automatically withdrawn from your checking account to make the monthly loan payment. Or, set up automatic bill payments on your end through online or mobile banking.
  • Is your job secure? Should you lose your job and become unable to make your monthly payments, your co-signer will have to do so. If your job is unstable, now may not be the best time to take out a loan.
  • Are you taking steps to improve your credit? By vouching for you, your co-signer is giving you an opportunity to improve your credit record by making regular payments on the loan. It’s important that you follow through on your promise to your co-signer and the lender.

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