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First Car Loan Guide

Commitment, preparation and effective research constitute the only path to getting your first car loan approved fast, says a highly regarded auto industry expert I have known for years. Beyond the excitement that may come from owning the vehicle, you must think about your rights and responsibilities as a borrower, including how to comply with the loan's terms and conditions.

What Do I Need to Get a Car Loan?

The criteria you must meet to get a car loan are not different from requirements under other types of loans, such as personal loans, equipment loans, and special-purpose loans like wedding debts.

  • First, you need to buy the car and sign all the paperwork at the dealership, making sure you have read all the fine prints and paid attention to things like warranty terms and conditions.
  • Second, your economic situation must fit within the credit requirements of the bank or other financial institution that is granting you the loan. Things to consider here include current employment and job history, say, for the previous three or four years; credit history; credit score; and debt-to-income ratio, which equals your total debt payments divided by your monthly take-home pay.
  • Third, the bank would check that the primary driver of the vehicle, you in this case, has a license – and how long you have had it, just to verify that you are responsible and trustworthy.
First Car Loan Guide

Where Do I Get a Car Loan?

Contact your bank or financial institution to learn more about available auto loans along with terms and conditions. If your bank does not provide auto loans or if its loans do not mesh with what you are looking for, shop around. You don't need to barnstorm the offices of several banks in your residence area, though. Just contact your local chamber of commerce or your state's Department of Financial Services to get more information about auto loan companies in your area. Besides a bank, you can apply for a car loan:

  • At a credit union if you belong to one or if the institution grants such loans to nonmembers – check this resource to see credit unions operating in your area.
  • From your family or friends if some loved ones have the cash to fork over. This alternative might be preferable to save you money on interest, especially if you have no credit, have filed for bankruptcy recently, or possess poor credit.
  • Through an online lender, such as those listed on and
  • Via the car dealership if the institution grants such loans. Most dealerships work with banks, so the loan you are receiving from the dealership ultimately is granted by a partner bank. At the time of purchase, ask the dealer about financing options as well as the applicable terms and conditions.
  • Through peer-to-peer financing, a new alternative to traditional lending that enables a group of willing individuals to advance funds to another person, subject to specific conditions. For more about peer-to-peer lending, or P2P lending, visit and

Would I Be Approved for a Car Loan if I Have Bad Credit?

You would not necessarily be turned down if you have poor credit, that is, a credit score in sub-prime territory – I mean anything below 640. Check with the financial institution to learn more about approval conditions. The loan underwriter would determine the cause of the low credit score before approving or denying your application. For example, if your score is low because you are young and just embarked on the credit bandwagon, the underwriter might consider other factors, such as income and employment history, when making his or her loan decision.

How Can I Refinance My Car Loan?

The vagaries of the economy, especially the ups and downs that interest rates experience every now and then, may prompt you to consider refinancing you first car loan immediately after receiving the funds. For example, if you get approved for an automobile loan with an annual percentage rate of 10%, and three months later you get a better deal from another institution, say, this one charging 7%, you should consider the latter offer and refinance the existing loan. To get more information about interest rate movements, check out Bankrate Auto. You can find a car loan rate by:

  • Indicating whether the inquiry is about a purchase or refinance arrangement
  • Selecting a product, say, a 48-month used car loan or 60-month new automobile loan
  • Entering your ZIP code

How and When Should I Use a Car Loan Calculator?

You use a car loan calculator when you are shopping around for the best deal, and also after you get approved because you would want to double-check that the monthly payments and loan amortization schedule sent by the bank is correct. "Amortization schedule" is a numerical table that tells you how must pay each month until the loan principal shows a zero balance. There are myriad auto loan calculators available online, and all provide a step-by-step guide to use their tools. For more information about how to use a car loan calculator, take a look as our auto loan calculator.

Can I Get a Car Loan as a Student?

Yes but it could be difficult. Put yourself in the lender's shoes, and maybe you could understand why it might difficult to approve a student's car loan application. For example, the potential creditor would see that you have no job, no credit history, and a driver's license that was issued as recently as two or three months ago. All these factors may cause the loan underwriter to take a pause on your application, determine whether the risk is worth taking, and figure out what other mitigants must be obtained from you before the loan is approved. "Mitigant" is something – such as collateral or a co-signature – that a lending institution requires to lower the risk it takes on a specific financial product. For example, in your case, the bank might ask that your dad co-sign the automobile loan application.

Can I Be Approved for a Vehicle Loan After Bankruptcy?

Yes, under certain conditions, most of which vary by lender and state. Some providers specialize in this type of loan, so you can contact them to see if the interest rate they would charge is exorbitant or lower than what other institutions are willing to give you. The key thing with bankruptcy is that it stays on your credit file up to 10 years, so during that decade you might not receive the best credit deals available out there.


Applying for a first car loan should not be a complicated process if you do your homework in advance and use online resources that cover everything from financing options to eligibility criteria. By doing the initial legwork, you plant the seeds of quicker loan approval, a lower interest rate, and a loan term and monthly payments that both fit within your budget.

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