To qualify for a car loan, there are a few different factors you need to consider. While having good credit can help, there are other criteria that lenders consider when determining whether to approve your application. Here’s what you need to know.

Make Sure You Have Good Credit?

Having a good credit score is essential if you want to get approved for an auto loan with decent terms. In general, a good FICO® Score☉ ranges from 670 to 739, and a higher score is even better.

Auto lenders typically use the FICO 8 or FICO Auto Score models to determine your score. Keep in mind, though, that lenders may have their own rubric for determining what they consider to be good or not. But if your credit score is at least in the good range, you’ll have a relatively good chance of getting approved.

Also, note that lenders may choose to approve you for a car loan even if you have a less-than-ideal credit score. But they may charge you a higher interest rate or require a cosigner with strong, established credit. Some lenders specialize in working with people who have bad credit scores, but these loans can be expensive, so it’s a good idea to work on improving your score before you apply.

Have a Source of Income

Having a steady income is important to auto lenders because it improves the likelihood that you’ll make your monthly payments. Depending on the lender and your job situation, you may need to provide one or more forms of documentation.

Having a steady income is important to auto lenders because it improves the likelihood that you’ll make your monthly payments. Depending on the lender and your job situation, you may need to provide one or more forms of documentation.

Be Able to Prove Your Identity and Residence

If you’re getting a loan from the bank or sacco you use regularly, you may not need to provide this information. If you’re working with a lender for the first time, however, you may need to provide a government-issued ID and proof of residence.

This is primarily because the lender wants to know where the car will be parked in case you default on payments and it needs to repossess the vehicle.

Again, requirements can vary by lender, but in general, a driver’s license or other government-issued ID with your current address can satisfy both. If you don’t have that, you can also provide a utility bill, lease agreement or bank statement with your address on it to prove your residence.

Have a Down Payment or Trade-In

Making a down payment or trading in your current car reduces how much you have to borrow and can make it easier to get approved at a lower interest rate. Here’s what you need to know about each option.

Down Payment

A down payment is cash that you give to the dealer or seller to help cover a portion of the sales price of the vehicle. Lenders tend to view borrowers with down payments more favorably because it means they have skin in the game and are less likely to default.

Because a down payment reduces how much you have to borrow, it also lowers your monthly payment and the total amount you pay in interest.

Understand How Financing at a Dealer Works

If you’re working with a dealer, it’s important to understand how they handle the financing process. With many dealers, they reach out to multiple lenders at once to get quotes that they can share with you. Be sure to ask to view all the quotes instead of just the one the dealer recommends.

Some dealers may even offer special financing programs to borrowers that are sponsored by the car’s manufacturer. These deals typically require that you have excellent credit and agree to specific terms.