A woman handing a set of car keys to an outstretched hand.

How to apply for a car loan

The days of walking into a dealership, picking out your dream car and handing over a certified cheque from a bank loan are over. The truth is, nowadays there are several ways to apply for a car loan, and the good news is, you don't need perfect credit to be approved. All you need is a reasonable budget, affordable monthly payments and time to shop around for the best interest rates.

First, find the car

This is the first step when shopping for a new vehicle. You don't want to apply for a car loan before you find the car because you won't know the required amount of the loan until you price out the vehicle with the seller or dealership.

The key thing to remember when shopping around for a car is to find a car with the features you want at a purchase price you can afford. More expensive cars come with higher monthly car payments and that may just not be reasonable for your budget. Keep it practical when shopping for a new vehicle.

Second, shop around for car loan interest rates

Once you find a car at a price you can afford it's time to start thinking about how you're going to pay for the vehicle. If you want to finance the purchase of your new wheels there are several ways to apply for a car loan. You can apply for financing directly with the dealership, you can visit your local bank or credit union or you can seek alternative financing from lenders online.

So often people apply for a car loan where they're comfortable, i.e. their bank branch. But if you go that route you may not be getting the best interest rate on your loan. Shop around and compare prices between lenders before applying for a car loan.

Third, gather all of your personal information

After you know the price of your new car and have decided on a lender, it's time to gather all of your personal and financial information. Whether you apply for a car loan with the dealership, at your bank or online, the process is similar for most lenders. You'll need to have generally the same information on hand when filling out the application.

Lenders take into account your personal information, financial history, payment capacity and credit score when reviewing a car loan application for approval. They'll ask for your residence and employment history, additional monthly debt obligations, as well as total yearly income and other outstanding debts. All of these criteriam, along with a credit check, will determine if an application is approved.

Finally, submit your car loan application

Once you have all of your personal and financial information on hand it's time to apply for a car loan. Once approved you can go to the private seller or car dealership and purchase your new car. Don't forget to shop around for car insurance as well because the dealership will ask for proof of insurance before you drive off the lot.