People use car loans to finance their vehicle purchases and pay them off over time. They’re one of the most common types of personal loans and offer many advantages over other financing options.

But what exactly is a car loan? Where can you get one? And how does it work? In this guide, we’ll answer all those questions and more.

We’ll start by explaining what a car loan is and how it differs from other types of financing available in today’s marketplace.

Then we’ll explore different types of car loans available and who can get them—and why.

What is a car loan?

Car loans are the most popular type of auto finance. They allow buyers to purchase a vehicle without paying for it upfront and then pay back the loan over time.

Most car loans have fixed rates, meaning that they stay consistent over the life of your loan.

-This can be beneficial if you know how much money you want to spend every month on your new wheels and don’t want to worry about any surprises in interest costs at renewal time.

Who can get a car loan?

Car loans are available to consumers of legal age who meet the following requirements:

  • Income. You must have a steady income and be able to prove it, either with pay stubs or tax returns.
  • Credit score. Most lenders require you to have a good credit history (ideally, 720 or higher) to qualify for a car loan. If your credit score is lower than that, there are still options—just know that they’ll be more expensive and come with lower monthly payments due to higher interest rates and fees.
  • Debt-to-income ratio (DTI). The DTI measures how much money you make compared with how much debt you owe on everything from student loans and credit cards to mortgages or car loans

—the higher this ratio is when compared with other factors like income level, job security, etc.,

the less likely it will be approved for a loan because those high numbers could indicate an unstable financial situation where risk factors exist, such as missed payments or bankruptcy filings down the road, which would negatively impact both parties involved (you as borrower; bank as lender).

Where can I get a car loan?

You can get a car loan from any of the following places:

  • A bank or credit union
  • An online lender, like or Discover Personal Loans (a subsidiary of Capital One)
  • A credit union
  • A car dealership (if you’ve already purchased the vehicle and are now looking to finance it).

If you’re buying your car from a dealer and financing it through them, they’ll likely have the best rates.

But if you’re not buying from that particular dealership, they may be able to give a better deal than an online lending company or your bank/credit union.

How do I apply for a car loan?

You can apply for a car loan online, in person, or by phone. If you’re using online, you’ll need the following information:

  • Your name and contact number
  • A valid driver’s license number
  • Your Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN). If you have an ITIN but not an SSN, enter that here instead of your SSN. You don’t need to provide this if it’s included as part of your personal information on file with them—if it is, just enters your full name there instead.
  • The make and model of the vehicle that you want to purchase
  • The price tag for the car (this info should be easy to obtain from any dealer selling vehicles similar to what you have in mind)

What is the interest rate on a car loan?

When you take out a secured loan, the lender will hold your valuable asset as collateral.

-This means that if you default on your payments, the lender can repossess and sell off your car to recoup what’s owed to them. The amount of interest charged on an auto loan is based on several factors:

  • Your credit history – Lenders want to know that you’re likely to pay back their money in full. If you have a good record with lenders, expect lower interest rates than if not;
  • The type of vehicle – A new car is more expensive than an older one and comes with higher monthly payments; but it also has higher resale value when sold;
  • Length of the loan term – Longer terms mean lower monthly payments but higher overall interest costs (read: be careful not to extend too far into the future).

What documentation and information do I need to provide when applying for a car loan?

When applying for a car loan, you’ll need to provide your lender with the following documentation:

  • Proof of income: W2s, pay stubs, and tax returns are all acceptable forms of proof of payment.
  • Proof of employment: A current employer letter or telephone confirmation from HR is acceptable.

If you’re self-employed, ensure to include tax returns and bank statements as proof.

  • Bank statements: Your lender will want to see that you have sufficient funds in your account—at least three months’ worth—to pay off the loan if necessary. It’s also helpful if you can show that these funds have not been used recently;

-this might be done by showing a recent statement from an online banking service like Mint or checking account activity over the last month or so on another financial app like Mint or Quicken (or even just printing out all transactions).

What information can help me determine if the car loan I’m considering is of good value?

When determining whether or not a car loan is a good value, there are a few pieces of information you’ll need to have on hand. These include:

  • The total cost of the loan (amount financed)
  • The interest rate
  • The term of the loan
  • The monthly payment

The first three are pretty self-explanatory. Understanding what your monthly payment is going to be and how much it will grow over time can help you determine if this is something that works within your budget and gives you enough wiggle room for emergencies. Remember, too, that everything has an expiration date.

When looking at different vehicle loans, make sure they all have similar terms to compare apples with apples.

Otherwise, one could look like an incredible deal while another would seem more expensive because they’re both longer-term loans.

With car loans, what you see is what you get.

With a car loan, what you see is what you get. If you have a good credit score and can put down a small amount of money toward your down payment, you’ll have no problem getting the best interest rate on the market.

Additionally, car loans are easier to qualify for than personal loans because of their more transparent nature (based on your income and assets).

However, if you don’t meet all the qualifications for a car loan—or if there’s just something about them that makes them less appealing to you—then personal loans may suit your needs better.


Car loans are an essential part of the financing process for a car purchase. They allow you to make your payments in installments rather than at once.

Car loans also have smaller initial down payments, making it easier for a consumer to afford and purchase a car.

If you’re ready to buy a car and want flexibility in your payment schedule, consider a car loan from your credit union.

The people there will help you find the right financing for you, so be sure to stop by soon and ask for more details about their auto loans.


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