What to Expect When Applying for an Auto Loan

Need to finance a car? If it’s your first time applying for an auto loan, here’s what to expect, and how to best prepare.

Understanding Auto Loan Basics

An auto loan is a secured loan used to purchase a vehicle. You borrow a set amount of money from a lender—such as a credit union or bank—and repay it over time with interest. The vehicle itself usually serves as collateral for the loan, which means if you stop making payments, the lender can repossess the car. Because of this, auto loans tend to have lower interest rates than unsecured loans, such as personal loans or credit cards.

What the Auto Loan Application Process Requires

When you apply for an auto loan, lenders will review your credit history, income, employment, and other financial details to determine your ability to repay the loan. Be prepared to provide: 

• Proof of income (such as pay stubs or tax returns) 

• Identification (such as a driver’s license) 

• Information about the vehicle (make, model, VIN, and purchase price)

Choosing the Right Auto Loan Terms

Auto loans typically come with repayment terms ranging from 36 to 84 months.  Each term length offers different advantages: 

• 36 months (3 years): Higher monthly payments, but potentially lower total interest paid over the life of the loan. 

• 48 months (4 years): A balance between short and mid-range terms. 

• 60 months (5 years): One of the most common terms, offering manageable monthly payments and moderate total interest costs. 

• 72 months (6 years): Lower monthly payments, but more total interest paid over time. 

• 84 months (7 years): Extended term with the lowest monthly payments, but highest overall cost due to total interest. Best for buyers who need maximum flexibility, but it’s wise to review the long-term cost.

Getting Credit Ready for Your Auto Loan

Before you apply, it’s a good idea to check your credit score and take steps to build it if needed. A higher credit score may help you qualify for lower interest rates, which can save you hundreds—or even thousands—over the life of the loan. 

To get credit-ready: 

• Review your credit report for errors and dispute any inaccuracies 

• Try to pay down existing debts 

• Avoid taking on new credit before applying 

• Make all payments on time 

At Service Credit Union, we can also help you understand your credit profile and offer guidance on building it. Get tips to build your credit score today. 

First-time borrowers: If this is your first time applying for a loan, your credit score may be low due to a lack of credit history. A smart way to start building credit before applying for your first auto loan is to open a starter credit card, such as Service Credit Union’s Visa Everyday® card, or the Service CU Visa® Everyday Starter Credit Card, which is backed by a cash deposit. By making regular monthly payments on your credit card, you’ll start to build your credit score and you may have more lending options available.   

If time is of the essence and you do not have enough credit history to apply for an auto loan, your lender may ask for a co-signer, such as a parent or other relative, to make the loan less risky.

Benefits of Auto Loan Preapproval

Loan preapproval is one of the smartest steps you can take before heading to the dealership. It gives you a clear picture of how much you can afford to borrow, your estimated monthly payment, and your interest rate. Preapproval may also strengthen your position when negotiating the price of the vehicle. 

With Service Credit Union, getting preapproved is fast and free. It’s a great way to shop with confidence and avoid surprises. Learn more about getting preapproved for an auto loan.

Auto Loan Refinancing Options

Already have an auto loan but want better terms? Service Credit Union can help with auto loan refinancing! When you refinance, you replace your existing loan with a new one, typically to secure a lower interest rate and reduce your monthly payment. Learn more about refinancing your auto loan. 

Ready to Get Started? 

Applying for your first auto loan doesn’t have to be overwhelming. With proper preparation and the right financial partner, you’ll be well on your way to owning the car that fits your needs and lifestyle.  

Start your auto loan journey today at servicecu.org/auto.