Buying a new car through financing can be both a rewarding and complicated experience. It is rewarding because you can enjoy the perks of buying a car without spending all of your money to get one.
All you have to do is find a lender, ensure that all checks are done for car finance, submit car finance requirements, agree on loan rates, and repay at a given and agreed terms and interest rates. Easy as it may sound? But the process will make it a complicated experience.
To help you organize and simplify the requirements, we’ve summed up the things that lenders will need to check from you.
Proof of identity is the most basic and important part of your car finance requirements. It is not just an identification card, but rather a legal and acceptable identification card or document that shows your details, such as:
- Full name
- Date of birth
- Marital status
A valid proof of identity is either a primary document or a secondary document. Your passport, driver’s license, or national identity card are considered primary documents and will be accepted as part of your car finance requirements.
Proof of residence
The next part of your requirements to be submitted is your current residence and must be supported and verified by any document of proof of residency or proof of address. It is any valid document that shows your current location of residence.
There is a lot of acceptable proof of address such as, but not limited to the following:
- Utility bills
- Internet bills
- Credit card statements
- Lease agreements
Those documents are basic and easy to do for car finance. Just make sure they are up-to-date, so anytime you need those documents, especially on the checklist of car finance requirements, you can send them right away.
Bank statement details
A bank statement is another part of your car finance requirements that you need to submit when applying for a car loan. Lenders will not rely on what you say about your income. But your bank account will help you. Lenders wanted to see bank documents to verify your financial capability to repay. Some lenders may require you to submit at least 2-months’ records of your bank statements as part of car finance requirements.
Whoever wishes to apply for an auto loan must provide their current job title and income details. But it doesn’t stop there. Another important part of the requirements when applying for car finance is your employment details. You will be asked to submit a document that shows at least three years of your employment history, and if the lender finds gaps in between your previous employers of past jobs, you may be required to submit more than three years of your past employment.
For the self-employed, it might be challenging for lenders, but income tax documents or tax returns may be sufficient to be considered as part of car finance requirements. Lenders wanted to check if their clients are in good faith in entering a loan agreement, can pay, and are not engaged in fraudulent activities.
Unsurprisingly, you also have to show your driver’s license to complete your car finance requirements. The main reason for this is if you get arrested without a driving license, you’re still obligated to make continuous payment until you complete your auto loan.
Lenders implement car finance requirements as preventive measures to protect you from going default, which is likely bad for their business as well.
Lenders want assurance that people applying for an auto loan have the capacity and ability to repay to fulfill the car finance requirements. To prove this, you have to submit a proof of income that shows your income level, which lenders use to calculate and mitigate the risks in default. The following documents, as part of car finance requirements, can be used as proof of income:
- Bank statements
- Employment certificate
- Investment certificate
- Award letter
- Income tax documents
- Pay notice
Credit score may be the last requirement mentioned here, but not the least for you to understand and be more aware. It is one of the most important car finance requirements that lenders want to check. They do this by pulling your credit scores from credit bureaus. These credit bureaus are:
Both Equifax and Transunion are using the same scoring range, which is 0 to 700. But for you to get processed and satisfy requirements, the lowest credit score must be at least 550. Meanwhile, to be considered to have a good credit rating, the scoring range varies this time:
- Equifax is between 420 to 465
- Transunion is 604 to 627
- Experian is 881 to 960
With Experian, they check from a scoring range of 0 to 999, which is higher than Equifax and Transunion.
How long does the process take?
Your loan approval timeline varies depending on the lender you have submitted your car finance requirements or what platform you sent your car loan query to. It may be online, a car dealership, or lenders like banks.
- Online lenders, including those who process car finance for bad credit, can give you the quickest result. It may be a few seconds, 15 minutes, or less than an hour. Depending on the availability of your car finance requirements, it may also take up to 1 week to get the full loan approval.
- Most of them offer a same-day approval process with car dealerships, though it may also take a week to finalize your loan.
- If you decide to apply directly to lenders and banks, they might take 2 working days up to 1 week to check everything.
Whatever timeline they have, it will always depend on the completeness of your car loan requirements. If you are confident that everything is put in place, the next thing to do is set your mind and have extra patience. The result may be rewarding.
Hard check and soft credit check at the dealership
Since you are now aware of your credit score and excited to visit one of the car dealerships, you are hesitant because you learned that applying for car finance needs either a soft or hard credit check.
Take it easy because even if car dealerships are certified to do a hard credit check, they opt not to. They prefer to use a soft credit check, which is equally important to other requirements because dealers can still get important information about your credit score.
Soft credit check also doesn’t require any permission from the applicant. All you have to provide is your basic information, unlike a hard credit check that shows sensitive personal information.
However, if you made up your mind and wanted to proceed with the auto loan, that is the time your lender will need a detailed credit report through a hard credit check for the completion of your car finance requirements.
How to make sure you’re approved for car finance
Each lender varies their criteria on how they approve or reject each loan application. Depending on the completeness of the submitted car finance requirements, you will have an idea if you will be approved or not.
To ensure that all check items are done for car finance, these are things to remember:
- Provide accurate and honest information about your identity, proof of address, current and past employment, and source of income.
- Collect all necessary documents and check if they are up to date.
- Always remember insufficient car finance requirements can deny your application.
- Do your research about the lender’s criteria and checks done for car finance.
- Know the total amount of the car to understand how much you can save if you decide not to continue the car loan application.
- Get price quotations and rate comparisons from a dealership or online services.
- Know your credit score and credit rating, which are available from credit bureaus. If you have a poor credit rating, know how to rebuild your credit score.
After you realize that all of the mentioned car finance requirements are available and you’re confident that you can prove that you handle your personal finance pretty well, you are now one step away from driving your new car. Enjoy!