How Auto Financing Works

Most people finance at least part of a vehicle purchase. The process is much easier when you understand a few terms before you apply. Here's how auto financing generally works, what lenders look at, and how to compare offers so you know the full cost — not just the monthly payment.

Pre-qualification vs. approval

Pre-qualification is an early estimate. You share basic information, and a lender or credit service gives you an idea of whether you're likely to qualify and what terms might look like. It's useful for setting a budget, but it isn't a loan offer.

Approval comes later. The lender reviews a full application — including your credit report, income, and the specific vehicle — and decides whether to lend, how much, and at what rate and term. Final terms can differ from a pre-qualification estimate.

The numbers that shape your loan

Annual percentage rate (APR)

APR is the yearly cost of borrowing, expressed as a percentage. It includes the interest rate and may include certain lender fees. A lower APR means you pay less to borrow the same amount. Rates are set by the lender based on your application and market conditions.

Loan term

The term is how long you have to repay the loan, usually stated in months, such as 48, 60, or 72. A longer term lowers the monthly payment but usually increases the total interest you pay. It can also leave you owing more than the vehicle is worth for a longer period.

Down payment

Your down payment — cash, trade-in equity, or both — reduces the amount you borrow. A larger down payment lowers your monthly payment and total interest, and it can strengthen your application.

Amount financed

This is the price of the vehicle plus tax, title, license, and any fees or optional products you choose, minus your down payment and trade-in equity. Interest is calculated on this amount.

Compare total cost, not just the monthly payment

Two loans can have similar monthly payments and very different total costs. Before you sign, make sure you know:

• The APR and the loan term in months
• The amount financed
• The total of all payments over the life of the loan
• Any fees or optional products included in the amount financed

Lenders are required to disclose these figures in writing before you sign a credit contract. Read them carefully, and ask about anything that isn't clear.

What lenders typically consider

Every lender has its own criteria, but most look at a similar set of factors:

• Credit history and credit score
• Income and how steady it is
• Existing monthly debts compared with your income
• The size of your down payment
• The vehicle's age, mileage, and price
• The loan term you're requesting

If your credit history is limited or has some challenges, you can still apply. Approval and terms depend on each lender's requirements.

How to prepare before you apply

1. Check your credit reports for errors. You can request free reports at AnnualCreditReport.com.
2. Set a monthly budget that includes insurance, fuel, and maintenance — not just the loan payment.
3. Decide how much you can put down and whether you'll trade in a vehicle.
4. Gather recent pay stubs or other proof of income, plus proof of residence.
5. Use a payment calculator as a rough guide, keeping in mind that actual terms come from the lender.

Applying with Auto Select

When you're ready, you can start with our secure online financing application. It's provided by a third-party service, 700Credit QuickQualify, so the information you enter goes through that provider's secure system. Our team will review the results with you, explain your options, and answer questions before you commit to anything.

Submitting an application doesn't obligate you to buy, and it doesn't guarantee approval. Approval, rates, and terms depend on lender requirements and your qualifications.