How Does Financing a Car Through a Dealership Work?

If you are applying for a new car loan, you’re probably wondering what lenders will take into consideration. What do the big banks look for, and how can you be sure that you will be approved for a new car loan? Here’s the short answer.When you apply for a car loan – whether a new loan on a new vehicle or a refinance on an existing loan – the key things lenders will look at are: your current income and income history, your credit score and credit history, your personal information, the vehicle you’re hoping to finance, and either your down payment or your existing loan.Read on to get into the details of how banks determine car loan eligibility (and how you can make sure you qualify).Car Loan Eligibility: Everything you Need to KnowIn this guide, we'll review:How banks determine if you qualify for a car loanWhat’s considered a good credit score for a car loanQualifying for a car refinanceHow do banks determine if you qualify for a car loan?Your incomeYour credit scoreYour personal detailsYour down paymentLenders 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 incomeLenders 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 scoreWhen 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 Personal Details: identity and residenceLenders 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 paymentAre 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 Is A Good credit score for a Car 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 850Very Good (Prime): 661 to 780Good (Non prime): 601 to 660Fair (Subprime): 501 to 600Poor (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. Experian data from the first quarter of 2025 provides data on the car loan APRs offered by credit score (for new cars).Super prime (781-850) average APR offered: 5.18%Prime (661-780) average APR offered: 6.70%Near prime (601-660) average APR offered: 9.83%Subprime (501-600) average APR offered: 13.22%Deep subprime (300-500) average APR offered: 15.81% 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 banks determine if you qualify for a car Refinance?Your existing loanYour vehicleYour financesIf 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 Current Car loanWhen it comes to car refinancing, 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 vehicleLenders 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 considerationsIf you want to refinance your vehicle, lenders will consider many of the same factors as they did when you got your initial financing:Your current income and debt-to-income ratioYour credit scoreYour identity and residenceThe down payment you made to purchase the vehicleWhen 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 Car refinancingLenders 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 lender that is right for you.So what are you waiting for? Get your free quote today!GET A QUOTE IN 60 SECONDS

You’ve done your research and you’ve decided that it’s definitely time for you to refinance your vehicle, and you want to make sure you get the best rates on your car refinance. What do you do?Here’s the short answer.To get the best car refinance rates, you’ll need to:Understand APR vs. interest ratesKnow the information lenders will want to look at and prepare your finances accordinglyMake sure your credit is in orderMaintain a good payment recordCompare refinance offers from multiple lendersRead on for the long answer.Everything you need to know to get a good rate on your car refinanceLike so much with refinancing, the more you know the better off you will be. Some diligent research and proactive measures can help you secure the best refinance rates around.In this guide, we’ll cover:Why people choose to refinanceThe difference between interest rates and APRWhat lenders look at when determining ratesProactive steps you can take to get the best car refinance rate possibleReasons to refinance your carThe number one reason to refinance a vehicle is that, thanks to dealership markups, most people can save money by refinancing. However, there are many more specific reasons people choose to refinance.Consider refinancing if:Your credit has gone upMarket rates have gone downYour expenses have gone up and your current rate no longer works for your budgetYou want to shorten or extend the loan term to pay it off on a specific timelineYou want to add or remove a co-borrowerAPR Vs Interest RatesIf you’ve been looking around at car refinancing, you have probably come across the terms APR and interest rate. But what is the difference between APR and interest rate?Interest rate is the cost you pay each year to borrow money, expressed as a percentage. APR, which stands for Annual Percentage Rate, is the interest rate plus any other fees associated with the loan. This includes any loan fees or interest that accumulates before your first payment.Your APR is actually a much better gauge of what a loan will cost, as opposed to an interest rate. All lenders are required by the federal Truth in Lending Act (TILA) to disclose what the APR on a loan or line of credit will be. APR is the number that you want to compare when looking for the best refinancing rates.What Lenders Look At When Determining RatesInterest rates, which combined with additional fees make up the APRs, are determined by both market factors and personal finance factors. Market FactorsRefinance rates depend in part on how the economy is performing. Interest rates are set by the Federal Open Market Committee (FOMC). Lowering interest rates is intended to encourage spending if they decide that spending needs to be encouraged. Personal Finance Factors And The Four C’s Of CreditWhen you apply for credit, lenders will look at what is called the four c’s of credit. These are the considerations they will take when deciding to approve or reject your loan. They will also help dictate what your APR should be. The four c’s of credit are: capacity, character, collateral, and capital. Let’s explore these terms.Capacity. This refers to your ability to repay the loan. What is your income? Is it a steady job that you have had for a while? What are your other debts? These all contribute to your capacity to repay the loanCollateral. This refers to what you have that could repay the loan. In the case of a secured auto loan, your car would serve as collateral.Capital. This refers to how much you are worth (monetarily speaking, don’t take this to heart too much). What are your other assets? Do you have a mortgage, a savings account, or another car? All of this gives a snapshot to lenders and proves that you can manage your finances and have funds, in addition to your income, to pay you debt.Credit. This refers specifically to your credit score and history. We will look at how your credit score is determined in the next section. Your Credit Score And HistoryYour credit score is the most important factor in your refinance rate. While there is no magic credit score to refinance, the higher your score is, the better rate you will secure. To ensure you can secure the best rate possible, look at the following factors:Payment History. Do you have a history of on time payments? Have you missed payments in the past? Lenders want to be sure you will pay back your debt on time. Amounts Owed. How much money do you owe? The amount of money you owe, your debts, are used to calculate your credit utilization score. A credit utilization score below 30% is considered desirable for lenders. Credit History Length. How old are your accounts? Having older accounts and a longer credit history is more favorable to lenders. Credit Mix. Do you have a mix of different types of accounts and debts? A good mix might include a mortgage, auto loan, student loan, and credit cards. This indicates to lenders that you can manage your money across multiple accounts. New Credit. Do you have a lot of hard inquiries on your credit? Do you have some brand new debts? These might be considered liabilities by lenders.Steps You Can Take To Secure The Best Refinancing RatesThe most important things you can do to secure a good auto refinance rate are:Get and maintain good creditShop around and compare for the best ratesBuild And Monitor Your CreditWhether you already have great credit or need to build credit, here are some proactive steps you can take to ensure you have great credit to secure the best available refinance rate:Get your credit report and review for errorsKeep your credit balances below 30%Request higher credit limitsKeep using consumer creditMake your payments on timeBecome an authorized user on another person’s accountUse a secured cardWorth noting: Refinancing can temporarily lower your credit, so if you need a high credit score for another major purchase, you may want to time your refinance accordingly.Get Your Credit Report And Review For ErrorsContact one, or all three, of the credit bureaus (Equifax, Experian, and TransUnion) and get your free credit report. You can get your report from each agency for free once per year. Review your report thoroughly and look at the following:The date you opened any credit accounts or took out any loans. Make sure all dates are accurate.The current balance on each account. Have your records handy to cross reference.Your payment history. Be sure that you have not been reported inaccurately for a late or missed payment.The credit limits and total loan amounts.Any bankruptcies or tax liens.Your identifying information. This includes your name, address, and Social Security number. If you notice any inconsistencies with your report, you can contest the information and report it. Bureaus have 30 days to respond, so it may take some time to get a correct and accurate report. It is important to follow through however as the impact can be drastic.Keep Your Credit Balances Below 30%This is a simple way to lower your credit utilization ratio, which makes up 30% of your credit score. The highest credit scores often use less than 7% of their available credit. This will quickly improve your credit score and as soon as it is reported for the month, you will see the increase on your credit score.Request Higher Credit LimitsContact your credit cards and see if you are eligible for higher limits. This will also help lower your credit utilization ratio, ultimately increasing your credit score. This will help your score very quickly, as soon as it is reported to the credit agencies.Keep Using Consumer CreditWhen trying to increase your credit score, it may be tempting to stop using credit cards altogether to avoid accumulating more debt. It is better for your score to keep using your credit cards to make small purchases that you can pay off. If you can consistently pay off your monthly balances, it will improve your credit and make you a more desirable loan candidate.Make Your Payments On TimeKeep making on time payments to keep your credit score in good standing. Missed payments can quickly ding your score.Become An Authorized User On Another Person’s AccountThis is a quick and easy way to increase your credit score, especially if you do not have a long credit history. If a relative or good friend has an account that is in good standing and has a high credit limit, adding yourself as an authorized user will increase your credit. You don’t even need to use their credit card, you simply benefit from their good credit.Use A Secured CardA secured card is a type of credit card that is backed by cash deposits. This is especially helpful for people who do not have a long credit history but need to establish one. It is used like a normal credit card, and if you consistently make on time payments it will improve your credit score.Shop Around And CompareThe best refinance loans will have competitive APRs and low minimum loan amounts. Looking for a lender with a history of high customer satisfaction rating that is transparent and reliable is also important. You need to make sure you shop around before choosing a refinancing lender to ensure you get the best refinancing rate available to you. Auto Approve can help by helping you gather quotes from a wide range of trusted lenders.Now you know how to get the best available auto refinance ratesOnce you have a healthy credit score, Auto Approve can help you with the next steps of shopping around, applying, and comparing the rates and terms. WHen you refinance with Auto Approve, you get personalized help finding the best fit for your needs, then we do the paperwork for you! And don’t worry, we never tack on additional fees to your rates. Get your free, no-commitment quote today to see how much you could save by refinancing your vehicle!GET A QUOTE IN 60 SECONDS

The short answer: Yes, you can add or remove a cosigner from your vehicle loan by refinancing.Refinancing a car loan is when you replace one car loan with another loan. It is the best and often only way to change the terms of your loan.If your situation has changed and you need a little help with monthly payments, or if you could benefit from your spouse’s excellent credit, for example, refinancing with a cosigner might be a good idea. And on the other hand, if circumstances have changed and you are looking to remove someone from your loan, refinancing your vehicle is a relatively easy way to remove them from the loan – and it has other benefits, if the timing is right for you to get a better deal.Read on to learn more.The long answer: In this guide, we’ll cover everything you need to know about cosigners and refinancing:What is a cosigner?Keeping or adding a cosignerRemoving a cosignerWhat Is A Cosigner?A cosigner is a secondary person who signs onto a loan. They are obligated to pay back the loan should the primary borrower have difficulties making on-time payments. They assume the same financial risk as the borrower. Having a cosigner with good credit can be beneficial in securing a lower APR and getting better auto loan deals.How To Keep Or Add A CosignerYou can easily keep or add a cosigner when you refinance. Your cosigner will simply have to meet the lender’s requirements. Here are the most common requirements to be added as a cosigner:A good (or excellent) credit scoreA good payment historyA qualifying incomeDesire to cosign on your loanA clean background checkRead on to break each of these factors down.A Good (Or Excellent) Credit ScoreGreat credit is the first requirement of cosigning a loan. Think of your cosigner as a safety net; should something happen to you financially, the lender is assured that there is a backup plan for payments being made on-time. A good credit score is an indication of how strong of a security net you have.Credit scores are based on payment history, amounts owed (known as credit utilization), credit history length, credit mix, and new credit. A cosigner is only beneficial if they have good credit. A score of 670 and above is considered good, but the higher their credit score is the more helpful it will be to you.A Good Payment HistoryDoes your cosigner have a good history of on-time payments? Payment histories show lenders how people handle their debts. If you have a history of consistent payments, you are less of a risk to lenders. A Qualifying IncomeDoes your cosigner have a steady income? Their income needs to show that they can pay back the loan on your behalf if you are unable. Desire To CosignDo they want to help you out in this way? Becoming a cosigner comes with a lot of liability. Once they sign on the dotted line, they are responsible for the debt if you should default. A Clean Background CheckLenders will often use background checks to determine the liability of a cosigner. They will specifically look for financial issues, including evictions, repossessions, and financial fraud.How To Remove A CosignerThere are three ways to remove a cosigner from your loan, but refinancing is certainly the most popular:Attempt to remove them without changing your current loanPay off the loanRefinance to remove themYou may want to remove a cosigner if, for example, your credit has improved significantly since your original loan, and you no longer need the help of another person. You may want to reduce the risk for a loved one who was helping you out in a time of need, or you may want to change a loan to reflect a changing relationship. Whatever the reason, when you are ready to remove someone as a cosigner, you have the above options.Let’s take a closer look.Try To Remove Them From Your Existing PolicyRead your contract carefully and closely and see if there are any provisions that will allow the cosigner to be released from responsibility. This is very unlikely, as cosigning is put in place specifically to make it difficult for one person to back out. However, it is worthwhile to look through your contract if you are thinking about it.Pay Off The LoanIf you pay off the loan entirely, you will remove the cosigner automatically. This may not be a practical solution, however, if you are not in the position to do so. Refinance And Remove The CosignerThis is the most popular and easiest way to remove a cosigner. Since refinancing is replacing one loan with another, you are essentially paying off the original loan and starting with a fresh loan with new terms. Before you decide to do this, check on the following:Your Credit Score. Is your score in good or excellent standing? If it is not in good standing, expect to pay higher interest rates if you drop your cosigner.Your Cash Flow. Are you able to make the monthly payments every month? Do not remove your cosigner if things will be very tight. Falling behind on payments will be detrimental to your credit and can result in you losing your car.Your Current Loan. Are there prepayment penalties if you pay off your loan?  If the penalties are high, it may negate any savings from refinancing. Is there enough time remaining on your loan to make refinancing worth it? If you are near the end of your loan term, it is likely not worthwhile to refinance.Your Car’s Condition. Is your car retaining value and eligible to be refinanced? If you owe more on your car than it is worth, you will most likely not be eligible to refinance.Now You Know: Adding, Keeping, Or Removing A Cosigner From An Auto LoanIf you’re looking to add or remove a co-borrower, refinancing your vehicle may be your best or only option. At Auto Approve, we can help you compare quotes from multiple lenders and refinance today.GET A QUOTE IN 60 SECONDS