Car Financing FAQ's

You've found the perfect vehicle - now you just have to figure out how to pay for it. If you're like many people, you'll take out a loan to finance the vehicle you want to buy. But how does the financing process work, and what do you need to know before you head to the dealership? Keep reading for the answers to frequently asked car financing questions so you can feel confident when applying for an auto loan.

Frequently Asked Car Financing Questions

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Before you start applying for a car loan, take the time to do your research so you can be prepared. Here are some frequently asked questions with answers about the vehicle financing process.

How Much Does Credit Score Matter?

Your credit score will impact the interest rate you receive on a car loan. Generally, the higher your credit score, the lower interest rate you'll receive. However, your credit isn't the only factor a lender will take into consideration. Other factors that can affect the interest rate include the down payment you make and the terms of the loan. If you choose a shorter loan, such as 36 months, you might receive a better interest rate in return.

How Much Do I Need for a Down Payment?

The more money you can put down, the less you'll need to finance. In addition, a larger down payment can substantially decrease the interest you'll have to pay over the life of a loan. It's recommended to put 10% to 20% down on a car. However, that's not realistic for everyone. Determine the amount you can reasonably afford for a down payment. Remember, you can also trade in your current vehicle and put its value toward a car loan.

Can I Get a Car Loan With No Credit History?

You can get a car loan even if you've never borrowed money before, though the process may be more difficult. Often, it's helpful to have a cosigner who has a credit history. Ask a family member or friend if they're willing to cosign your vehicle loan. By cosigning the loan, they agree to make payments on the loan if you're unable to do so.

If you don't have a credit history, it's helpful to secure your first car loan through a dealership. A dealership can often work directly with lenders to help you get approved.

When Should I Apply for a Car Loan?

The timing of when to apply for a car loan depends on your own preferences and budget. You can get preapproved for a car loan before you even start shopping for a new vehicle. Many people choose to get preapproved because it helps them create a realistic budget they can reference when searching for cars. However, you don't need to be preapproved to apply for a car loan. Most dealerships have a finance center where you can easily apply for financing once you find the car you want to purchase.

What Should My Credit Score Be?

There's no minimum credit score you need to have to qualify for a car loan. However, lenders usually charge higher annual percentage rates (APRs) to borrowers with lower credit scores. The APR includes both the interest rate plus the fees a lender charges for the loan. It benefits you to have a higher credit score, so you can get a lower APR on your auto loan.

Here's how Experian, one of the three major credit reporting bureaus, breaks down the range of credit scores:

 
• Super prime: 781-850.
 
• Prime: 661-780.
 
• Nonprime: 601-660.
 
• Subprime: 501-600.
 
• Deep subprime: 300-500.

Based on a recent automotive financing report, prime and super prime borrowers account for over 66% of total car loans. In comparison, under 2% of borrowers have credit scores under 500. That doesn't mean you can't get a car loan if you have a credit score under 661, but it might be more difficult.

What Do I Need To Apply for a Car Loan?

When you're ready to apply for a car loan, make sure you bring the documents a lender may require. While these can vary, they typically include:

 
• A driver's license, passport, or other government-issued document proving your identity.
 
• Your personal details, including your Social Security number.
 
• Proof of income, such as a W-2, tax return, or bank statements.
 
• Proof of residence, like a utility bill or mortgage statement.
 
• Proof of auto insurance.
 
• Information about the vehicle, including the price and vehicle identification number (VIN).

What Interest Rates Will I Get on a Car Loan?

The interest rate you can expect to get on a car loan depends on various factors, including your credit score and the lender. When comparing auto loans, make sure you're looking not only at the interest rate but also at the APR. The APR provides a better understanding of how much you'll pay in both interest and fees throughout the loan term.

According to Experian, here are the average APRs based on credit scores:

• 720-850: 7.062%.
 
• 690-719: 8.17%.
 
• 660-689: 9.851%.
 
• 620-659: 12.067%.
 
• 590-619: 16.317%.
 
• 500-589: 17.136%.

As you can see, borrowers with lower credit scores have significantly higher APRs. Over the course of a loan, this means they end up paying more in interest. For a $30,000 auto loan with a 60-month term, borrowers with a 17.136% APR pay $14,886 in total interest, compared to $5,695 in interest for borrowers with a 7.062% APR, according to Experian.

Apply for Vehicle Financing in Plano, Texas

If you're ready to purchase a new car and require financing, we can help. At Huffines Chevrolet Plano, we offer affordable financing plans based on your individual needs. Before visiting our finance center in Plano, Texas, you can apply for financing online. That way, we can have your options ready to go once you arrive at the dealership, saving you time. It's one of the many ways we work to improve your car-buying experience, from our extensive new vehicle inventory to our friendly service. For more information about financing your next vehicle, contact us today.