How to Get Approved for a Car Loan

If you're looking to buy a car soon, chances are you'll need a loan to help cover the cost. The average price of a new vehicle in summer 2025 is around $48,699, according to CarEdge. Used cars aren't exactly cheap either, with average prices hovering near $25,512.

The price you'll pay will depend on factors such as the make, model, and age of the car, and your negotiating skills. However, unless you have thousands of dollars saved up, obtaining a loan is likely part of the plan. And that can feel a little overwhelming—especially if your credit isn't perfect or you're not sure how much car you can really afford.

That's where we come in. At WorkMoney, we're here to help you navigate the car loan process with confidence. We'll break down the basics of credit, pre-approval, budgeting, and lender options. So you can make the best choice to save money, and get a car that fits your needs and your budget.

What Lenders Look For When Getting A Car Loan

When you apply for a car loan, lenders take a close look at your overall financial picture. They need to determine whether you can realistically afford the loan and make the payments on time. Below are the main factors that affect your chances of being approved for a car loan.

Credit Score and Why It Matters

Your credit score plays a large part in getting approved and what interest rate you’ll pay. Most lenders will check your FICO score, which ranges between 300 to 850:

• Above 700: You're likely to qualify for better rates and terms

• 600–699: You may still get approved, but you'll probably pay more in interest

• Below 600: Approval is still possible, but your loan may have stricter terms, a higher interest rate, or require a larger down payment

If your score is on the lower end, don't panic. You still have options. But improving your credit, even slightly, can help you qualify for the best deals.

Debt-to-Income (DTI) Ratio

The amount of your debt-to-income ratio (DTI) is key. It’s the percentage of your monthly income that you’re already paying toward debts. This can include credit cards, loans, or other regular payments. Lenders look at these numbers to determine whether your finances can handle another monthly payment.

Here are the general DTI guidelines:

• Under 36% (Ideal)

• 36%–41% (Generally acceptable)

• 43%–50% (May limit loan options)

• Above 50% (High risk to lenders)

Even if your DTI is high, that doesn't mean you'll automatically be denied. But, you may only qualify for a smaller loan, need a larger down payment, or need to apply with a cosigner.

Income Verification

You'll also need to show proof that you can repay the loan by having a steady income. Most lenders may require:

• Current pay stubs or W-2s

• Recent bank statements

• Tax return, or 1099s if you're self-employed

You may even qualify to get a car loan if you're unemployed. If you have income from other sources, such as Social Security, disability, or retirement, it still counts. You'll just need to provide documentation.

Required Documentation

You may need to provide additional documentation to move forward with your car loan, which includes:

• Valid driver’s license or state ID

• Recent utility bill, or lease agreement

• Car insurance card

Being prepared with these ahead of time can speed up your loan process and reduce going back-and-forth with the lender.

How to Get Approved for a Car Loan

Before you head out to shop for a car, it’s important to know how much you can afford to borrow without getting in over your head. That’s where getting a pre-approval can help. It means giving a lender permission to take a closer look at your finances so you can see how much money you may qualify for.

Here are a few steps you can take to strengthen your pre-approval—and improve your chances of getting the best deal.

• Step 1 – Check In On Your Credit

  A strong credit report greatly improves your odds of getting pre-approved and helps you lock in a lower interest rate. Since payment history makes up about 35% of your score, paying bills on time really matters.

  You can check your credit reports from Equifax, TransUnion, and Experian for free at AnnualCreditReport.com. For now, you can request one every week. So it’s a smart habit to review them often.

  Another reason to check your credit report is to see if there are potential errors. In a recent survey study, nearly half of the participants found an error in their report. If you spot errors, like a late payment you didn’t miss, you have the right to dispute it. 

  Additionally, there are tools like Experian Boost that help by adding on-time utility or phone payments to your report. This will continue to prove to banks and other lenders that you’re able to pay bills in a timely manner.

• Step 2 – Build a Realistic Budget

  Before you get a car loan, it's important to consider how it will fit into your current budget. You should also factor in the other costs associated with having a vehicle, such as insurance, gas, maintenance, and repairs. 

  Here’s a quick look at what a sample budget might look like based on an income of $3,000 a month:

  If you need help to stay on track with your money, you can try a free budgeting app, or download a free budget worksheet online. The goal is to get a picture of what you can truly afford before you sign on the dotted line.

• Category	Amount	What it Includes
  Rent + Utilities	$1,200	Affordable housing
  Groceries	$600	3–4 people
  Phone + Internet	$60	With Lifeline discount
  Car Payment	$325	Used or lower-cost vehicle
  Car Insurance	$125	Varies by location
  Gas + Maintenance	$100	Fuel and upkeep
  Emergency Fund / Savings	$100	Starting small matters
  Other Essentials	$400	Other basics like meds, clothes, childcare
  Total	$2,910
  Leftover	$90	Use as a bank account buffer or for extra savings

• Step 3 - Compare Lender Types

  Not all car loans are created equal, and who you borrow from can make a big difference in how much you'll pay each month. The type of deal you can get depends on the lender, your credit, and whether you’re buying a new or used vehicle.

  Let's look at some pros and cons of different lenders:

  Pro Tip: Compare multiple lenders within a 14-day timeframe to limit the impact on your credit score.

• Lender Type	Pros	Cons
  Bank	Can compare multiple lenders; No account needed to qualify	Stricter eligibility requirements; longer processing time
  Credit Union	Lower rates; more flexible terms	Must be a member; fewer locations
  Dealership	Convenient one-stop shop; special promotions	Higher interest rates; more markups
  Online Lender	Fast applications, easy to compare offers	Lenders may not be well-known; less personalized support

• Step 4 - Get Pre-Approved Before You Shop

  Getting pre-approved before you head to the dealership puts you in control. You’ll know exactly how much you can spend and have stronger negotiating power.

  Just don’t confuse pre-approval with pre-qualification. A pre-qualification is a rough estimate with no credit hit. A pre-approval is the real deal. It includes a hard credit pull and shows how much a lender is willing to loan you.

  You can get pre-approved through a bank, credit union, or online lender—the same places you’d go for an actual car loan. Once you’re pre-approved, don’t bring it up right away at the dealership. Focus on the car’s price first.

  Here’s what to say:

  "Let’s focus on the price of the car first. Once we agree on that, we can talk about financing."

  After the price is locked in, you can either use your pre-approval or see if the dealer can match or beat it.

• Step 5 - Have a Down Payment (Even a Small One Helps)

  The more money you can put toward a down payment, the better. It reduces the amount you'll need to borrow and lowers your monthly payment. It also improves your chances of getting approved for a car loan, especially if your credit isn’t perfect.

  To figure out how much to borrow, take the sale price of the car, add taxes and fees, then subtract your down payment and any trade-in value. If you're trading in your current car, bring the title, loan info, and mileage with you. You may also consider selling your car yourself on platforms like Facebook Marketplace or OfferUp to potentially earn more.

  To come up with a down payment, you could use your tax refund, side hustle income, or adjust your budget for a few months. Paying more now could save you thousands in the long run.

Other Ways To Stretch Your Budget To Get A Car Loan

There are many ways to make room in your budget when you want to buy a car, such as:

• Programs like Lifeline and  LIHEAP (Low Income Home Energy Assistance Program): They’re benefits you’ve already earned. Even if you’ve never applied before, you might qualify and free up money for your car expenses or savings.

• BillCutterz helps lower your monthly bills, which may reduce your debt ratio and help you qualify for better loan terms.

• Insurify compares car insurance rates, which can reduce your overall cost of owning a car.

For example, Mary could use her tax refund for a down payment, get pre-approved, and reduce her costs with Lifeline. That combination could help her qualify for a loan she can manage, even on a $35,000 income.