You’ve eked the last mile out of your hand-me-down beater, and it’s time for new wheels. Fortunately, figuring out how to get a car loan to make it happen can go as smoothly as the coat of wax you’ll soon apply on your shiny new (or new to you!) vehicle.

Follow our virtual road map on how to get a car loan, complete with some educational pit stops, such as the value you can find with credit union car loan rates.

9 steps to get a car loan

Securing an affordable car loan rate can be a bumpy road if you’re not fully educated on the process. In one study, The Center for Responsible Lending found that U.S. car buyers collectively paid nearly $26 billion in hidden interest over the life of their loans. So before you hit the lots, shop around for a loan that fits your needs and budget. Don’t talk to a vehicle salesperson until you know what you can afford and the lending options available to you. And keep in mind that credit union car loan rates from your local credit union will often be much lower than what the dealership offers. Here’s how to get a car loan that works for you. 

1. Check your credit score

Before shopping for your ideal ride, check your credit score. Compiled from your credit report, which reflects your credit activity and current debt, your credit score will dictate your car loan interest rate and how much you qualify to borrow. You can check your credit score for free through the three nationwide credit bureaus: Equifax, Experian, and TransUnion. 

Car loan rates for prime or good credit (≈ 650 to 850) can range from under 3% to around 6%, while rates for subprime or bad credit (≈ 600 and below) can range from 10% to 20%. If you have bad credit, consider postponing your car purchase for up to a year to pay down debts and improve your credit score. 

2. Research car loan rates

Once you know your credit score, you can research car loan lenders and find the best interest rates. Most car dealers offer internal financing, but rates can vary widely as each lender will weigh factors differently when determining the interest rate they will offer you. For example, one lender may prioritize your car loan history, while another focuses on existing debt. Therefore, you will want to show up to the lot knowing your different options. 

Look into loan offers from online lenders, banks, and credit unions. During this process, keep in mind that credit unions are member-owned not-for-profits, unlike other lenders, which means your financial representative works for your best interest rather than their shareholders. As a result, credit union car loan rates are typically some of the best available. 

3. Get preapproved for a car loan

Once you’ve found your top lender options, you may want to secure preapproval. Loan preapproval is different and more rigorous than prequalification and will give you the most accurate car loan rate offer. Prequalification represents a range of possible interest rates for which you will likely qualify without guaranteeing a specific rate. Preapproval means the lender agrees to offer you a particular rate if your selected vehicle meets its loan requirements.

You will need the following documentation to get preapproved for a car loan:

• Identification and driver’s license  

• Proof of income

• Credit history 

• Proof of residence 

• New vehicle information 

• Proof of auto insurance 

• Down payment 

• Old vehicle information (if trading in)

4. Compare preapproval offers

After securing your preapproval offers, you can compare and select the best one to fit your needs and budget. However, there is more to consider than just the interest rate. For example, credit union car loans may offer even better rates for members who meet their credit union car loan requirements, such as setting up an auto-withdrawal payment plan or working with car dealerships where the credit union has negotiated a discount. 

Review the following components of the preapproval offer to determine how much you can afford, what fits within your monthly budget, and whether the offer works for your car needs: 

• Down payment. The larger the down payment, the less it will cost to finance your car overall.  

• Annual percentage rate. APR includes your interest rate as well as annual fees on the loan. 

• Loan term. The longer the loan term, the more interest you will pay. However, a shorter term will include larger monthly payments. 

• Total monthly payments. Total loan amount, interest rate, and loan time will impact the amount you pay on the car loan each month.

• Taxes and fees. Sometimes payable through monthly payments but often paid upfront, make sure to include the cost of taxes and fees in your overall budget. These include vehicle registration fees, sales taxes, and other dealer fees. 

• Title cost. The car title is a legal form issued by your state certifying you as the legal owner of the vehicle. Depending on where you live, it will cost you anywhere from $4 to $150.  

• Potential restrictions on the preapproval. Such limits may include car type limitations or dealership requirements.

5. Car shop

OK, now it’s time for the fun part — shopping for your new car! Now that you’ve done the legwork, shopping for your new car will likely be a fun and stress-free experience. When you hit the lot, you’ll know what you can afford, your leverage when making a deal, and which loan options you have in your back pocket.  

Remember that your loan options may have certain restrictions on vehicle type, make, or model, so keep these elements in mind as you shop. Also, don’t wait too long to shop after receiving your preapproved offers; some will come with an expiration date.

6. Review the dealer's loan offer

After you pick your dream car, the dealership will likely draft you an internal loan offer. When comparing the dealer’s loan offer to your preapproved offers, be sure to examine the details closely. 

It’s not uncommon for the agreement to include hidden fees and unnecessary coverage. These elements may include:

• Longer loan periods that tack on extra interest 

• Extended warranties and insurance that duplicates your existing coverage or exceeds the value of the vehicle

Take some time to review all the options and select the car loan that works best for you — not your car dealer. 

7. Choose and finalize your loan

Once you’ve completed a careful review, you can select and finalize your car loan. Follow the instructions from your lender if you choose to go with an external loan, such as one of your local credit union car loans. Sometimes, the dealership will follow up with your lender directly to initiate funding. In other cases, you will need to give the go-ahead.

No matter which lender you choose, give the contract a final read to ensure you understand the small print. Be on the lookout for any last-minute charges, such as add-ons you may not want, like window tinting, custom floor mats, upholstery protection coating, and more.  

8. Buy your car

You’ve done the work. Now, it’s time to sign on the dotted line. But before you snap your new vehicle selfie and drive off the lot, be sure to give the car a final inspection for any defects or damage. 

Also, don’t hesitate to ask the salesperson for a run-through of the vehicle’s features and options. You can read the manual thoroughly later, but for starters, you should know how to operate basic elements such as mirror positioning, lights, signals, and the gas tank. Then, you can cruise with confidence.  

9. Make your payments on time

There is one last step: car loan payments. You did your due diligence in finding the best car loan, so make sure to submit your payments on time. Consider setting up automatic payments — the cruise control of financing. 

If you can, consider paying off your loan early to save even more. Just make sure there aren’t penalties for early payments. 

Further resources on how to get a car loan

Need some extra help in learning how to get a car loan? Check out these resources.

• Get a free credit report at AnnualCreditReport.com. 

• Learn more about your debt-to-income ratio at the Consumer Financial Protection Bureau. 

• Find out the trade-in value for your existing vehicle at Kelley Blue Book.

Navigate car loans with a little help

When navigating how to get a car loan, it pays to have a trusted partner in the passenger seat who has your best interests in mind. Find a credit union near you. 

Did you know?

Many credit unions offer lower car loan interest rates than car dealerships, online lenders, or banks. Unlike shareholder-owned banks, your local credit union is built on personalized relationships with members where lower fees and interest rates reflect their not-for-profit, member-oriented approach.