How Do Banks Determine Car Loan Eligibility?

How Do Banks Determine Car Loan Eligibility?
How Do Banks Determine Car Loan Eligibility?
| Jan 12 2013
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What Banks Look at When You Want to Finance

When you are applying for a car loan, you may be wondering what lenders are taking into consideration. Just how far do they dig, and how can you be sure that you will be approved for a new car loan? 

Here’s how banks determine car loan eligibility (and how you can make sure you qualify).

How do banks determine if you qualify for a car loan?

Lenders will look at a lot of information when determining whether or not you are eligible for a new car loan. Your current finances, your credit score, and other factors are all considered when determining eligibility.

Your current income

Lenders want to see that you have steady income. Lenders will want to see current pay stubs if you are a W-2 employee (usually they will want to see more than one). If you are self employed or receive social security, you may need to provide bank statements. The lender will tell you what documents you will need to provide. They will also look at how your income compares to your debt (your debt-to-income ratio).

Your credit score

When you apply for a car loan lenders will pay special attention to your credit score. Your credit score is an indication of how likely you are to repay your loan, so the higher your score is, they will view you as more likely to repay your car loan. A good credit score will also help you to secure the best car loan APR possible.

Your identity and residence

Lenders will need to verify that you are who you say you are. They also need to know where you live so that they can repossess the car should you fail to make payments. A government issued ID is usually required for this. If you do not have one, a utility bill or lease agreement may suffice.

Your down payment

Are you wondering “how does increasing the size of your down payment impact your auto loan?” The answer is, a lot. Lenders feel more comfortable giving you a car loan if you make a down payment. It will also mean that you have to borrow less money and will in turn get a more favorable car loan APR.

What credit score is needed for a bank auto loan?

A good credit score means you are a more trustworthy loan candidate in the eyes of the lender. Credit scores can be broken down into five categories:


  • Exceptional (Super prime): 781 to 850
  • Very Good (Prime): 661 to 780
  • Good (Non prime): 601 to 660
  • Fair (Subprime): 501 to 600
  • Poor (Deep subprime): 300 to 500


There is no hard and fast rule for what credit score you need to have to secure a car loan, but generally you will have an easier time getting a car loan if your credit score is above a 620. But don’t just take our word for it. The latest Experian data from the third quarter of 2022 provides data on the car loan APRs offered by credit score.

  • Superprime (781-850) average APR offered: 2.96%.
  • Prime (661-780) average APR offered: 4.03%.
  • Nonprime (601-660) average APR offered: 6.57%.
  • Subprime (501-600) average APR offered: 9.75%.
  • Deep subprime (300-500) average APR offered: 12.84%.


Additionally it found that 65% of borrowers had a credit score above 661, while only 2% of borrowers had a credit score below 500. So while it is clearly not impossible to finance a car with a poor credit score, it is significantly more difficult and borrowers are offered much higher car loan APRs.

How do I qualify for a refinance for a car loan?

If you are looking to refinance your current car loan, you may be wondering what requirements to refinance a car there are. The refinance requirements are similar to those of simply applying for a new car loan, but your current loan and vehicle must also be taken into consideration.

Your loan

When it comes to refinance, lenders want to see that your current loan is at least six months old (although experts recommend waiting a year to refinance to give your credit score time to settle again after your initial financing). This will show that you can make your payments for this loan on time and in full. Some lenders might not require this, but you will need to at least wait until the car’s title is in the possession of your current lender. This can take weeks or even months for the paperwork to get straightened out. 

Lenders will also consider the time remaining and the balance remaining on your loan. Lenders usually have requirements for how much time is left on your loan (two years is pretty standard). Lenders also typically have requirements for how much of a balance remains on your car loan ($5,000 is another typical amount). If you do not have a lot of money or time remaining on your car loan you may have a difficult time qualifying for a car loan refinance.

Your vehicle

Lenders will also consider the car you are refinancing. If your car is too old or has too many miles on it (more than ten years old and/or more than 100,000 miles) lenders may not approve you for refinancing. Some lenders will refuse to refinance certain makes and models, such as large engine or commercial vehicles. Your vehicle’s history will also be taken into account by lenders. If your car has been in a significant accident or had water damage this might be an issue for refinance.

The loan to value on your current vehicle is another piece that lenders will consider when it comes to refinance. Your LTV is the total amount of your loan divided by your vehicle’s actual cash value. If this number is more than 125%, you may have a hard time getting approved for a car loan refinance. 

Other considerations

When it comes to refinance, lenders will again consider the following: 

  • Your current income and debt to income ratio
  • Your credit score
  • Your identity and residence
  • Your down payment

When applying for car loan refinance you should prepare yourself as much as possible by ensuring your credit score is in tip top shape.

That’s how banks determine car loan eligibility for both new cars and refinance. 

Lenders look at a lot of information when determining whether or not you will qualify for a car loan. It’s a good idea to gather as much information as you can ahead of time and work on your credit score to give yourself the best chance possible of getting approved.

If you are considering car loan refinance, Auto Approve is here to help! Our experts can guide you through the process and help find the refinance loan that is right for you.

So what are you waiting for? Get your free quote today!

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