Requirements to Finance a Car

Whether you're a first-time buyer or a seasoned veteran on the subject of automobile financing, there are certain requirements you must provide to obtain a loan. Meeting those requirements becomes increasingly important with every additional dollar you borrow.

Down Payment

There are times when you can get a car loan with little or no down payment. Most times, however, you need about 10 percent of the full purchase price of the new car as a down payment. A down payment partially shields the lender from the depreciation of the car. In lieu of a cash down payment, you can also offer your old car in trade for the new one. It's the same as a down payment in that it offers the lender protection--except it serves to reduce the loan required instead.

Grant Access To Credit Reports

Before making a car loan, most lenders ask permission to contact one or all three of the credit bureaus for your credit report. Each one rates your credit in a different way, but they all rely on your repayment history, current availability of credit and other information about you. In addition, some lenders ask you to fill out a financial statement. The lender will grant you the loan if all of that information meets his criteria.

Job History

Many lenders will ask you if you have had the same employer for at least 2 years. It's his way of verifying that you have a steady income. If you have been employed a shorter length of time, you may have to tell him the name of your previous employers. Your lender may also ask for your permission to contact your employer to verify that information.

Residence

An automobile lender may ask if you have lived at your current address for at least 2 years and whether you rent or have a mortgage. If you haven't lived at the same address for 2 years, he will likely ask you the address of your previous home; if you are a renter, he'll ask for the name of the landlord and permission to verify that rent has been paid.

Approval and Timing

Your auto loan will be approved if you meet the lender's minimum standards. If you don't, he'll either increase your interest rate on the loan to cover the added risk or will turn down your request. Most car lenders can tell you the status of your loan application within an hour or two.