What You Need to Know Before You Apply For an Auto Loan

With the economy going through some major changes right now, car shoppers should know that they can’t just go to the dealer, pick out the car they want, sign the paperwork and drive it off the lot.

“The days of no money down, walking onto the lot with checkered credit are over,” says John Ulzheimer, president of consumer education for and a CNBC contributor.

Buyers need to have a down payment and good credit to get excellent terms on an auto loan right now, he says. Lenders are asking for larger down payments in case the car ends up getting repossessed. Then they won’t have to take as much of a hit and will be able to cover costs of repossession if needed. Ulzheimer has some tips for car shoppers to get approved for an auto loan.

What you need to know before you go car shopping:
  • Most lenders will only pull one credit report. Know what both of your two scores are (Experian stopped selling its score to the public Feb. 14, but still gives it to lenders). Know which credit reporting agency the lender uses before you apply. Apply for your car loan with the lender that uses your highest credit score.
  • If you have bad credit and absolutely need a car, have someone co-sign. The blending of information may help you get approved for an auto loan and at a better rate because there are two people on the note. The downside of co-signing is that both people will get penalized if the payments aren’t made.
  • Don’t go into a car buying deal expecting to get a loan. Get pre-approved first. The captive lender should beat any pre-approved loan offer, but it gives you back-up financing if they can’t.
  • A huge unknown factor for car shoppers is your auto industry option score. This score more heavily weighs auto loan payment history. So even if you don’t have great credit, if you have a great car loan payment history, you’ll have a better chance of getting a good rate.