How to Get the Best Car Loan Right Now

There has never been a worse time to buy a car . List prices are still well above pre-pandemic levels, and anyone taking out a loan is facing a high interest rate , leading to higher car payments and higher overall costs in the long run.

But this is if you manage to get a loan at all. The denial rate for auto loans rose to 14.2% in June, up from 9.1% in February, according to the Federal Reserve. Luckily, there are certain steps you can take to not only get approved for a car loan, but also to secure the best loan option for you. Here are tips to help improve your chances of getting a car loan now.

Prepare documentation

To get pre-approved for a car loan, you’ll need to provide proof of identity, income, employment, and your credit history. Gather documents such as your driver’s license, recent pay stubs, W-2 forms and credit reports from the three major bureaus. Having these documents will speed up the application process.

Increase your credit rating

Your credit score plays an important role in determining your interest rate and whether you get approved. Before you apply for credit, check your credit score so you know where you stand. If it’s low, here are ways to improve it .

Get pre-approved

Get pre-approval from lenders before going to the dealership. Online lenders, such as banks and credit unions, can often pre-approve your loan faster than dealers. Getting pre-approved will also show the dealer that you are a serious buyer and can strengthen your negotiating position.

Make a large down payment

Lenders are more likely to approve buyers who put 20% or more down on the purchase. A larger down payment also results in better interest rates. If you don’t have enough savings, consider saving less money first and then refinancing.

Shop from multiple lenders

Do your research! Each lender has its own qualification criteria, rates and terms. Apply to multiple lenders, including local banks, credit unions and online lenders. Comparing loan offers will help you find the best deal. Even small differences can save you thousands over the life of your loan.

Aim for a shorter loan term

Opt for a three- to four-year loan if you can handle the higher payments. This prevents you from being stuck paying interest on a deflationary asset for nearly a decade. Your monthly payment will be higher, but you’ll pay less overall. It also shows the lender that you can handle larger payments.

Consider the co-signer

If your credit is limited, adding a co-signer with good credit may improve your chances and get you better terms. Make sure the cosigner understands that they will be equally responsible for repaying the loan.

Likewise, applying for a joint loan with another person with a good credit history can help those with limited credit get approved and secure better terms. You become co-borrowers and share responsibility for the loan.

Of course, if at all possible, it is better to avoid loans altogether. After all, the gold standard for buying a car is paying cash and paying in full.