How many hours have you spent on car shopping sites looking for your dream car? If you’ve lost count, you’re not alone. Tracking down the ideal car is the fun part of car shopping and comparing your options can certainly pay off. Now, how many hours have you spent thinking about how you’ll finance the vehicle? If the answer is 0 (or something close to it) you’ll want to start preparing for this part of the purchase ASAP. Car shoppers with excellent credit can get approved for a car loan with a low rate, but if your score isn't in the excellent category, add the following 4 steps to your to-do list. They are essential to help you get approved and obtain the lowest possible auto loan rate.

1. Check Your Credit Report

Man looking up credit score

Car loan approval isn't solely based on your credit score. A history of steady employment, your income, and your down payment all play into your auto loan approval and the rate you’re offered. With that being said, your credit score does heavily influence your interest rate. Before you apply for a car loan, you’ll want to make yourself well acquainted with your credit report. And you may even be pleasantly surprised to find that your score is higher than you thought. You're eligible to receive a free credit report every 12 months from all three credit bureaus including Equifax, Experian, and TransUnion. Take advantage of this to look over your credit report, determine which credit category you fall into, and check for any errors. 

2. Give Your Credit Score a Quick Boost

fair credit report
If your credit score is on the cusp of a better category, this step can make a big difference.

Most people believe improving a credit score takes years, and in some cases, that is true. For example, if you have filed for bankruptcy in the past, it can take anywhere from 7-10 years for your credit score to bounce back. On the other hand, with minor dings to your credit score like maxing out a credit card, your score can bounce back in just a couple months. If you're right on the cusp of the higher credit range, it can be smart to put off the car purchase until your score rebounds.

There are two ways to boost your credit faster. The first is correcting any errors you found in the step above. The Federal Trade Commission reports that 5% of consumers have errors in their credit report that affect their large purchases. Check for issues like late payment penalties that were actually paid on time, or penalties from a long time ago that should have been removed. To dispute an error on your report, complete the dispute form on the website of the bureau that made the mistake. 

The second way to quickly boost your score is to decrease your credit utilization. Credit utilization is a percentage of the available credit you use. For example, if you charge $2,500 every month and your credit limit is $5,000, your credit utilization is 50%. Before you start the car buying process, you should try to pay down your credit card balances as much as possible and ask for an increase to your credit limit which will instantly reduce your credit utilization. 

3. Find the Right Lender Type

banks and credit union pros and cons

If you have a low credit score, finding a lender to approve your car loan can be a source of frustration.  Traditional lenders such as banks usually weigh your credit score more than other factors when they look at your application. Before you jump into the car shopping process, consider alternative car financing strategies such as a credit union or bringing a cosigner into the mix. Both options can significantly improve your odds of approval and improve your auto loan rates. You can also shop around for subprime lenders online that specialize in bad credit auto financing. 

4. Get Pre-Approved

happy couple buying car
Auto loan preapproval gives you a better dealership experience with no surprises. 

Getting pre-approved for auto financing before moving forward with a lender gives you car buying leverage. Pre-approval means a lender approves you for a specific auto loan amount and interest rate and you can choose to take their offer or look elsewhere. If you come into the dealership with a finance offer secured, there will be no surprises such as a rejected application that prevents you from buying the car that day. By planning ahead, you'll also be able to compare interest rates and go with the lowest rate offered which can save you hundreds of dollars over the loan terms. As the name suggests, if you're not happy with the pre-approval offer, you're not obligated to move forward. 

Get Pre-Approved for a Car Loan