Getting an auto loan online has become an increasingly popular option for financing vehicle purchases. Online lending provides greater accessibility and convenience compared to applying for traditional loans. However, searching for trustworthy lenders and comparing loan terms takes extra diligence when borrowing online. Follow this comprehensive on how to get an auto loan online.
Benefits of Online Auto Loans
Online auto lenders offer several key advantages:
Convenience
The application process happens entirely online at your own pace. No need to schedule appointments or visit bank branches.
Quick Approvals
You can get matched with lenders and receive loan offers in as little as a few minutes after submitting an application.
Flexible Credit Requirements
Online lenders tend to have more lenient approval policies regarding credit scores and histories compared to banks. This expands options for those with less-than-perfect credit.
Potentially Lower Rates
More competition among online lenders can translate to reduced interest rates. With some searching, you may find more affordable rates than your local bank or credit union would offer.
Nationwide Lending
Borrow from lenders across the country instead of just what’s available in your geographical area. This significantly widens the pool of financing sources.
Step 1: Check Your Credit
Before applying for any financing, always check your credit reports from Experian, Equifax, and TransUnion to understand your current credit standing. This helps set proper expectations for the rates and loan amounts you may qualify for.
Online lenders mainly use your credit score to determine eligibility and interest rates. So knowing your scores from each bureau before applying gives you a head start on the process.
If your credit needs improvement, take steps to boost your score prior to seeking a loan. Paying down debts and correcting errors on your reports can raise your scores over time.
Step 2: Calculate Affordability
Review your budget to calculate a comfortable monthly payment amount for a car loan. Factor in existing debts, income stability, and other financial obligations. Auto financing shouldn’t consume over 15-20% of your take-home income.
Online auto loan calculators help estimate potential payments. Enter the anticipated loan amount, interest rate, and term length to see sample monthly payments. Adjust the inputs until you find payments fitting your budget.
Setting affordability expectations from the start prevents getting stuck with overly burdensome payments down the road.
READ ALSO: Finding the Best Place to Get an Auto Loan
Step 3: Research Lender Options
Searching online delivers endless lending choices from major banks, credit unions, and specialized auto lenders. But flocking to the first website offering a rate quote can mean overlooking better offers elsewhere. Casting a wider initial net makes comparison shopping easier later on.
Compile a list of top-rated online auto lenders to investigate further. Sources like NerdWallet, Bankrate, and Fit Small Business publish regularly updated lists of the best companies.
Assess factors like loan terms, past customer satisfaction, trustworthiness, fees, and applicant eligibility criteria. Pay extra attention to reader reviews on non-bank lenders which operate mainly online.
Step 4: Gather Necessary Documents
Before completing any applications, compile needed documents to submit to lenders:
- Proof of income – Recent pay stubs, bank statements, tax returns, etc. documenting your regular earnings.
- Proof of identification – Driver’s license, passport, birth certificate, social security card, or military ID.
- Proof of address – Recent utility bills, bank statements, rental agreement.
- Down payment funds – Bank statements if you have a down payment.
- Car information – Details on the car you wish to purchase if you have one picked out.
- Insurance documentation – Current insurance policy or quotes from prospective insurers.
Having these items handy saves time gathering paperwork during what can be a time-sensitive application process depending on the lender.
Step 5: Apply for Pre-Approval
The best way to start seriously comparing auto loans is obtaining rate quotes through each lender’s pre-approval process. Pre-approval provides non-binding estimates of what loan amounts, terms, rates, and payments you would likely qualify for based on a soft credit check and the details supplied in your application.
Applying for pre-approvals does not commit you to accepting any loan offers. So don’t worry about requesting quotes from multiple places when rate shopping. Too many hard credit inquiries from actual loan applications can modestly ding your scores. But the soft check from pre-approvals has no impact.
Give each lender the same parameters when applying for pre-approval to get the most equivalent rate quotes. Factors like loan amount, term length, type of vehicle, trade-in details, etc. can affect loan pricing.
Step 6: Compare Loan Offers
Once pre-approved, carefully compare the tentative loan details side-by-side from each lender. Assess elements like:
Interest Rates and APRs
The rate significantly impacts total loan costs. Even small decimal point differences of 1-2% boil down to hundreds in extra interest payments. Opt for the lowest rate possible given your credit profile.
Compare both the interest rate and annual percentage rate (APR). The APR incorporates fees to show the true annual price of financing.
Fees
Many online lenders charge no application fees but may impose origination fees and early repayment penalties. Origination fees run 1-5% of the loan amount. Prepayment penalties typically equal 1-3 months’ worth of interest. Minimize fees where possible.
Loan Term Lengths
Longer terms like 72-84 months lower the monthly payment but increase the total interest paid over the life of the loan. Find the shortest comfortable term you can afford.
Discounts
Some lenders provide interest rate discounts for setting up autopay, taking a financial literacy course, having multiple existing accounts in good standing, or buying environmentally-friendly vehicles. Discounts incrementally improve pricing.
Factor in any other fine print conditions before settling on a single lender and offer. Understanding the full terms helps verify you get the best overall deal to meet your needs and financial situation.
Step 7: Proceed with Full Application
With documents and pre-approvals ready, select your top loan choice and proceed to the full direct application. Input any additional requested information to complete underwriting procedures.
Now the lender runs a hard inquiry on your credit report verifying everything checks out. Provided the hard check confirm details from your soft checks, expect finalized approval of the pre-approved loan specifics shortly thereafter.
Before accepting the loan, give the proposed repayment schedule and all terms one last review. Reach out to the lender with any outstanding questions or clarify uncertainties about expected fees. Misunderstandings happen easily with predominantly online interactions. So leave nothing to question before e-signing the loan contract.
Step 8: Finalize Auto Purchase
Upon securing financing, you can now confidently shop for vehicles or finalize negotiations on a chosen automobile knowing funds are lined up.
To complete the sale, coordinate with the auto lender and dealership to transfer money and necessary titling paperwork for taking legal possession of the car. If purchasing from a private party, accompanying the seller to their bank to verify receipt of funds concludes the acquisition.
Now simply make monthly payments as scheduled over the loan term before the title transfers fully to you, signifying complete individual ownership. Enjoy the convenience of your new set of vehicle wheels!
To Recap
Obtaining online auto financing simplifies the lending process with added flexibility for borrowers of all credit types. But recognize the application differences from traditional loans. Follow these outlined steps for seamlessly finding and securing the best loan your budget allows online, and soon enjoy hitting the road worry-free with your next car!
READ ALSO: How to Get the Best Auto Loan Rate and Save Thousands
Frequently Asked Questions
What credit score is needed to qualify for online auto loans?
Each online lender sets their own minimum credit requirements. But scores as low as 550 may receive approval from some subprime specialty lenders – albeit likely at higher interest rates. Those with good credit (690+) qualify for the most favorable loan pricing.
How fast can I get loan funding?
The funding speed varies by lender, anywhere from same day up to a couple weeks. eLending platforms provide fastest access to funds, often as soon as the next day after e-signing loan documents. Traditional banks tend to have slower turnaround closer to two weeks.
Should I get pre-qualified or pre-approved?
Pre-approval is better when comparing actual loan offers, as it provides reliable rate and term estimates creditors should honor, barring any significant changes later found during formal underwriting. Pre-qualification only gives ballpark chances of approval.
What is the maximum auto loan term?
Common maximum terms run up to 72, 75, or 84 months (6-7 years). Long 6-7 year loans help lower payments but result in paying far more interest overall, so shorter terms of 5 years or less pay off the principal faster.
What down payment is typically needed?
Online lenders often need little or no down payment for approving loans, even over 100% financing. But at least 10-20% down is recommended to get the best rates, while lowering the amount borrowed and total interest costs.
Should I get financing before or after choosing a car?
Pre-approval locks in financing before picking a vehicle, granting you stronger negotiating leverage with sellers. They know you’re a serious buyer with guaranteed funds, as opposed to merely browsing with no financing yet.
