Getting Your Loan Approved
The last thing you want is back-and-forth trips to the lender’s office.
So, gathering all documents beforehand can go a long way towards getting your auto loan application processed quickly.
The qualifying parameters vary by lender, but there are some basic documents that all lenders will require for your loan application.
Here are the most commonly requested documents:
Proof of Identity
This document is required by Federal Law.
Although the accepted ID type might vary from lender to lender, a Government-issued ID with your photograph and address works in most cases.
Passports or driver’s licenses are the most commonly requested documents for proving identity.
Proof of Income
Every lender will want to verify that you can repay the auto loan per the agreed upon terms.
Hence, your income, employment history, assets, monthly expenses, credit history and all other relevant details will be thoroughly checked.
It’s worthwhile getting copies of a few months’ worth of pay stubs as well, indicating your recent earnings.
For self-employed applicants, most lenders will accept bank statements alongside Federal Tax Return statements.
Be prepared to show up to 60 months of tax history, and a bank statement going back at least 180 days.
In some cases, lenders might also ask for a 1099 form as proof of income.
Proof of Address
Any government-issued ID with your current address works fine, but many lenders insist on secondary proof like a utility bill, credit card or bank statement, homeowner agreement, insurance policy or anything else that has the same address as your proof of identity.
Please note that you can’t use a post box address as proof since a physical address is required by Federal law.
Banking & Credit Record
Each lender has a different loan-to-value (LTV) requirement, hence they might want to look at your complete credit history, including FICO scores.
A lender needs your consent to pull up your credit history.
You don’t need to physically carry any proof of credit history.
The lender will ask for the following information when you apply and will then verify it on their own:
- Social Security Number (SSN)
- Name
- Address
- Date of Birth
In most cases, lenders look at your history to scan for late payments or unpaid bills, as well as your total debt commitments to assess whether you have a sufficiently low debt-to-income ratio (DTI) to afford an auto loan.
Information About the Vehicle
When you apply for an auto loan on a new car, you will need to provide a bill of sale, buyer’s order or a purchase agreement.
This document must include:
- Purchase price of the vehicle
- The Vehicle Identification Number (VIN)
- Make, Model, and Year of Manufacture of the vehicle
If you are seeking a loan on a used car, you will need to show additional documents like the original title, lien disclosure, mileage information, and more.
Proof of Insurance
You will get the proof of insurance once you sign the bill of sale for your preferred vehicle.
The vehicle insurance must meet the guidelines set by the laws in your state of residence.
It must also meet any additional criteria set by the lender, increasing the importance of discussing the requirements before signing.
If you don’t already have auto insurance, we recommend shopping around for it before you purchase the vehicle.
Most lenders won’t allow you to drive the car out of the showroom unless you have proof of insurance.
Vehicle Registration Number (for Trade-in)
If you’re trading-in your current vehicle, make sure to carry the title and registration documents with you for faster approval.
Depending on applicable state laws, some lenders might also need you to submit a smog test and odometer test certificate, damage disclosure, and more.
Borrowing Wisely
There are many plans out there.
Always go for the one which is most in line with your financial situation and goals.
To avoid getting carried away like many do when it comes to auto loans, try to keep the following in mind:
- Figure out your overall budget (down payment + monthly payments). The higher the down payment, the lower the monthly payments - and vice versa.
- Define a suitable monthly payment amount. Try to think ahead and make sure it fits in with your overall fixed monthly expenses. Also keep in mind that you should leave aside some extra funds for unexpected events that could arise over the next few years.
- Choose a car that is truly within your budget. Fixating on a particular car or feature can skew your judgment and inadvertently cause you to go over your monthly budget for repayments.
- Remember, loans have interest. The longer the loan is taken for, the more interest you will pay overall.
- Try to stay away from “upside-down loans”. This means that you’ll owe more on the vehicle than it’s worth. This typically happens when the loan is taken over a long duration.
- If you expect to get a low-interest loan, you must meet the prerequisites. Before you speak to a lender, you should find out what documents and other information will be required.
A good rule of thumb: try to make a down payment of 20% and get a loan for up to 5 years. Every situation is different but staying close to this formula typically works for most.
Bottom Line
Successfully getting an auto loan in place doesn’t have to be a hassle.
If you compare multiple offers, get all the required documents together and plan your finances wisely, you’ll be able to get a loan which helps you to make the purchase you want, and make sure it fits in with your overall financial situation and monthly expenditure.
