What Will a Bank Verify for an Auto Loan?

What Will a Bank Verify for an Auto Loan?
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A car is a major expense that often can't be purchased unless you obtain a loan. Dealerships often offer financing, as do finance companies. If you can qualify for a loan through a bank or credit union, however, you may receive a more favorable interest rate, which can lead to a lower monthly payment. Banks are typically more conservative than dealerships or finance companies. They'll verify much of the information you provide in your credit application.


One of the most important factors in buying and paying for a car is your income. Main types of earned income include salary, hourly, commission or freelance. Banks will require that you verify income, but how you verify may depend on income type. For example, if you are salaried, or paid the same regardless of number of hours worked, they may request only recent pay stubs or W-2's. If your income varies from month to month, such as commission or freelance, they may require tax returns or bank statements for verification. In some cases, banks may also call your employer to verify that you still work there before closing on the loan. Banks will limit how much you can borrow based on your income; a car payment of 10 to 13 percent of your income is a common standard.


Banks also will verify the amount of debt you have and how well you handle it. Typically, they do this by looking at your credit report, which should include a credit score. That score will be used to determine whether you qualify for the loan and at what interest rate. The higher your credit score, the lower the interest rate and monthly payments you'll make.


To prevent identity or other types of fraud, the bank will be sure you really are who you claim to be. When applying for a loan, bring your government-issued photo ID (such as your driver's license). Some banks also may require that you prove residence through a utility bill. They also might ask to see your Social Security card to verify that your Social Security number matches what you put on the loan application. You may also need to prove your citizenship or residency status.


Because you are using the car as collateral for the loan, the bank wants to be sure the car can be replaced if it's in an accident. It will want to check on whether you have insurance, and if so, how much. It may verify this from your insurance card, or it may call the insurance company directly.