Take these documents when you apply for an auto loan
Car loan shopping? Bring these documents
- Photo ID
- Proof of income
- Proof of residence
- Vehicle information
- Proof of insurance
If you’re batting around the idea of buying a new car and know you’ll need a loan, a good early step is to gather the documents you’ll need to take to a lender.
It’s always a good idea to compare lenders and rates, and to get preapproved for an auto loan, a process that will tell you how much you are qualified to borrow. Following are the documents you’ll want to bring along.
Bring two pieces of identification. One should be a photo ID, preferably your driver’s license, but you can also bring a passport or other government-issued identification card. Your ID should have your current address and your signature. Other acceptable identification includes stock certificates, titles to other vehicles or a government-issued card, such as a Medicare card.
Proof of income
Lenders want to know that you have a steady income and can afford to repay the loan. Bring paystubs and bank statements for at least the past two months.
Most lenders call your employer to verify you work there and ask about your wages, so bring your employer’s contact info, including a contact name, and phone and fax numbers. Verifications generally go through your human resources department.
If you’re self-employed, bring your tax returns or form 1099s for the past two years. These documents should show a steady income and that you earn enough money to cover the payments. Other documents to gather may include profit and loss statements, bank statements for your business, invoices and other documents that show steady, reliable income over time.
Also consider bringing proof of any income from rentals, child support, social security or other sources.
Proof of residence
Bring documents that prove you live where you say. Utility bills are good choices, as are lease agreements.
If you’re getting a loan on a vehicle, the lender wants to know all about it. In most cases, the vehicle is the collateral, meaning if you can’t repay the loan, the lender will take possession of the vehicle.
If you’re buying a new car, bring the dealer sheet or buyer’s order. This document includes the purchase price, vehicle identification number, year, make and model, and other details.
For used cars, get all the vehicle information from the seller that you can, including mileage, the vehicle identification number and any documentation that discloses any liens on the car.
If you’re trading in a vehicle, be sure to bring the title and registration papers for your vehicle, as well as any other documents that will prove ownership and help the lender determine the worth of the vehicle. This could include maintenance logs, emissions tests or other invoices to show mechanical work (new transmission or brakes, for example).
Proof of insurance
Before the loan is finalized, you’ll need to show proof of insurance. If this is your first car, and you don’t currently have insurance, take some time to shop and compare insurance companies before you go to dealerships.
Know that insurance rates vary by state. Insurers will ask for the vehicle’s make and model, and the year it was made. Insurance providers also want to know how you will be using the vehicle, the estimated number of miles you’ll drive for fun and for your daily work commute. They’ll ask about your driving history, including accidents, tickets, suspensions or other legal issues.
If you have insurance, call your provider before you go to the dealer and let them know you’re considering something new. They can give you an estimate on your new rate, and it starts the process for a change.
It’s not a document, but its still something to be aware of. Lenders will run a credit check before they give you money. They’ll review your debt-to-income ratio, look at your credit score and, even with the stack of documents you hauled in, may still ask for other information.
Credit scores of 700 and above are considered a good risk and will get the best rates. Scores of 500 or lower — which usually signals a high debt load or some issues with paying bills — will face tougher requirements and see the highest rates. Be sure to ask about monthly payments, and how long you’ll be paying the loan. Be sure it fits in your budget, and that you can still afford to pay your other bills.
If the lenders bring up subprime rates, you may want to consider waiting and work to improve your credit.
Major caveat No. 1
Oftentimes, auto dealers will help with every step of the purchase, getting the loan – whether the loan is through the dealer or another lender – and providing details to your insurance company. Dealers want to make the sale, and so will go to great lengths to help make it work. It’s your job to make sure the deal works to your advantage and to your budget.
Major caveat No. 2
If you go through your current financial institution, and you’ve got an excellent credit score in the 700-plus range, there’s a good chance you won’t be asked for much of anything. You’ve already developed a relationship with the lender, and you’ve proven you’re a good risk.