In order to make the car-buying process go smoothly, you’ll want to get your car loan approved quickly. Having the documents needed for a car loan ready before you apply could get you on the road faster.
Generally, lenders are looking for proof of your identity, and to assess if you’re a borrower with low risk. This information — along with your credit score and report — will help determine the APR on your car loan. Here’s what to have handy.
What documents do I need for a car loan?
Sufficient income, credit and a history of paying debts on time are among the top criteria lenders seek in an applicant. The documents you need for an auto loan verify that you can afford to pay back what you borrow.
Dealers also need to see certain documents before they’ll let you leave in your new car, such as proof of insurance.
Make sure you have the papers you need
Documentation requirements can vary across lenders and dealers, so you may want to ask them what you should bring when you’re ready to finance.
1. Proof of identity
To help curb terrorism and money laundering, the federal government requires banks and lenders to verify applicants’ identity before taking out a loan. For most, a driver’s license, passport, U.S. visa or other government-issued I.D. showing your photograph and name is sufficient.
What about business auto loans?
Applying for a business auto loan is more involved than applying for a standard auto loan. In addition to the other items on this checklist, be prepared to provide your:
- Employer Identification Number (EIN)
- Business license
- Partnership agreements
- LLC documents
- Tax returns
Each lender (and business) is different, so it’s a good idea to contact the lender for more information.
2. Proof of income
Lenders will review your income, assets, employment, credit history and monthly expenses to make sure you can pay your car loan.
Some lenders will take your word for it, but you may want to make copies of your pay stubs from the last month, just in case. You may also be able to use alternative forms of proof of income, such as bank statements or a W-2. And in some cases, the lender may call your employer to verify employment and income.
Showing proof of additional sources of income or other assets may also help you to qualify for a larger loan or improve the terms of your loan. If you have income from rentals, legal settlements, alimony, child support, Social Security or other sources, make sure to bring documentation.
How do self-employed borrowers prove their income?
Many lenders use a borrower’s W-2 as proof of income, but most self-employed people aren’t considered W-2 workers. Instead, your lender may ask for your 1099, profit and loss statement or bank statements.
3. Credit and financial history
When you apply for a car loan, the lender will ask for your Social Security number, name, address and date of birth so they can pull your credit. There is no hard and fast rule that dictates what credit score is needed to buy a car. What’s more, auto lenders utilize the credit scoring model of their choosing. However, they’ll likely use your FICO Auto Score or your VantageScore.
Lenders also pay special attention to your debt-to-income ratio (DTI). This metric compares the amount of debt you currently carry to the amount of income you bring in. A high DTI could give auto lenders pause, as it may indicate that you already have more debt than you can manage.
They also may review your credit report. With this, lenders will check for collections in your credit history, including bankruptcies, foreclosures, lawsuits, wage garnishment and liens. A past history of unpaid debt — especially related to an auto loan — will adversely affect a lender’s confidence in your ability to hold up your end of the bargain.
Bad or limited credit?
If you have bad credit or a limited credit history, a lender may require a cosigner for an auto loan as a form of security. This is because bad credit or limited credit can make you appear as a higher risk to lenders, as it suggests a history of late or missed payments, or simply a lack of experience in managing credit. A cosigner is someone with better credit who agrees to take on the responsibility of your loan if you fail to make payments.
Learn more about the pros and cons of having a cosigner on an auto loan.
4. Proof of residence
Federal law requires lenders to gather information on your residence, as well as proof of that residence. If your driver’s license is current or the address you provided on the credit application matches the address on your credit report, this may be sufficient for most lenders.
If you’ve recently moved, you may need to provide further documentation. You might be able to use a piece of personalized mail you have received within the last month such as:
- Utility bill
- Mortgage statement
- Lease agreement
- Credit card or bank statement
- Property tax bill
- Medicaid or Medicare benefit statement
- Homeowners or renters insurance policy
A physical address is required, so you can’t use a post office box as proof of residence. The only exception is for Army Post Office boxes (APO) or Fleet Post Office (FPO). You may also use the address of a next of kin.
5. Vehicle information
If you’re financing through a dealership, the dealer will provide all the vehicle information to the lender. If you are working with a lender directly or buying a car from a private party, you will need to obtain or complete a bill of sale, purchase agreement or buyer’s order, which should include:
- Purchase price
- Vehicle identification number (VIN)
- Year, make and model
In addition to the above, those buying a used car, should ask the seller for the car’s mileage, original title and if there are any current liens on the car.
6. Current vehicle registration
If you’re trading in a vehicle, you’ll want to bring your title and registration to speed the transaction along. The title proves you are the owner of the vehicle, and lists any lien holders.
You may also need to provide an odometer statement. Some states may also require a smog certificate or a damage disclosure. A dealership will usually provide these last forms to fill out if you don’t have them.
7. Proof of insurance
You will need to provide proof of insurance (usually in the form of a declarations page) before you can drive off the lot in your new car. And depending on the lender, you may need to carry certain coverage or deductibles. For instance, some lenders will allow $1,000 comprehensive and collision deductibles, while others set a maximum deductible of $500.
If you already have an auto insurance policy, your new car might be automatically covered by your existing policy for a certain amount of time, but this means the coverage you have on your current policy will extend to your new vehicle.
For instance, if you have liability-only coverage on your current policy, you’ll have liability-only coverage on your new vehicle.
Don’t forget to include your insurance premium in your budget.
While you’re crunching the numbers related to a new car, you should also consider how much it will cost to insure. It’s a good idea to compare auto insurance quotes before signing on the dotted line. Don’t settle on the first quote you receive, either. Getting multiple quotes can help you find the insurance company with the most competitive premium.
8. Down payment
It may go without saying, but make sure to bring your preferred method of payment when you’re ready to make a down payment on a car and apply for your loan. This may include:
- Cash
- Personal check
- Cashier’s check
- Credit card
- Debit card
- Preapproved car loan
- Personal loan
If you’re planning on using a credit or debit card, ask the dealer if they accept this form of down payment, if there’s a cap on how much you can charge and if there are extra fees involved. Also, check with your card issuer to see if there is a limit to the amount you can charge in a single transaction. The last thing you want is to find out at the dealer that you can only charge $2,000 a day when the total down payment is $5,000.
Use our auto loan calculator to determine how much car you can afford.
