What Do I Need to Get a Car Loan?

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Car loans require proof of purchase agreement and insurance to be completed.
Car loans require proof of purchase agreement and insurance to be completed. (Image: car key and remote control isolated image by Nikolay Okhitin from Fotolia.com)

Car loans are similar to other large personal loans, like mortgages. Certain lenders specialize in granting car loans to borrowers. Many dealers have worked out deals with mortgage brokers and offer loans directly to the car buyer when they buy the car. Like all loans, the borrower must meet certain requirements to get the loan, usually in the form of paperwork that proves his financial status and the status of the car he is purchasing.

Car Loan

Like all loans, car loans are governed by terms and interest rates. The loan will last a certain number of years (less than a mortgage, however) and will have a rate attached to it, compounding the interest the borrower has to pay. Car loan rates are more subject to change than mortgage rates, and dealers may include low rates for the first year of payment or other deals that make car loans more attractive. No matter what kind of car loan, the borrower will still need to produce the same types of paperwork.

Credit

Credit is always important for a borrower. Credit companies will check the borrower's credit when they attempt to purchase a car using a loan. Depending on the credit history and report, the lender may or may not grant the loan. If the lender does not give the loan, the borrower must seek a new payment option or less expensive car. Borrowers can create good credit by making sure their debts are paid off on time months before they try to purchase a car.

Budgeting Extra Items

Before a borrower attempts to obtain a car loan, they should examine their finances and all the fees that will be included in their purchase. Licensing, registration, gas, maintenance and insurance can all be hidden costs that some car buyers do not think about. Ideally, a borrower should know how much he can afford per month before he chooses a car.

Insurance

Car lenders will require that a borrower produces evidence of car insurance before the loan goes through. Different lenders have specific insurance requirements. For instance, many lenders require a maximum deductible of $500 and full coverage options. Without these specifications, the lender will not grant the loan and payment will be delayed.

Paperwork Required

In addition to proof of insurance, lenders will require several key documents that show the borrower is actually buying the card. A buyer's order, purchase agreement, and worksheet are all often required. This proves that the car will be sold for a specific amount once the loan is made. Many dealers offer to give this information to a lender themselves.

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