The Federal Trade Commission says you should expect an average price tag above $28,000 for a new car and $15,000 for a used one. At these prices, you'll need a loan from a bank or finance company. Before you can borrow, your lender will need to copy or examine many papers to see whether you're a good credit risk, to establish your identity and to verify whether the car meets the lender's quality standards.
Papers on the Car
A bank may want to see information about the car for which you want a loan. Take the purchase agreement, which should contain the make, model, year and, of course, the price. Bring a copy of the odometer-disclosure statement; your bank might refuse to finance a car if the mileage exceeds a certain amount. You may also need to present the lender with a copy of the current car title, vehicle registration or vehicle identification number to show that your seller owns the vehicle and can sell it free and clear of any claims by others.
Furnish your current, non-expired driver’s license. In some states, the law prohibits you from buying a car without a license. Even if your state allows non-licensed drivers to own a car, your lender might hesitate to loan you money for a car you won’t or can't drive. If you borrow more than $10,000, the bank is required by federal anti-money-laundering laws to record or copy your driver’s license to verify your identity.
Provide proof that you have automobile insurance. Lenders almost universally require insurance to cover repairs or, if the car is totaled, the value of the car at the time of the wreck or other loss. After all, the car you’re buying is the collateral for the loan, and the bank does not want to be empty-handed. Also, you must have liability, or no-fault, insurance, depending on which state you’re in, to drive a car. Without it, you can't get a license and, thus, a loan. You can furnish a declarations document, which summarizes the type of coverage you have, or an insurance card from your insurer.
Your Payback Ability
To verify your current income, lenders typically want pay stubs for at least the last 30 days, perhaps longer, prior to your application date. You might also want to have your most recent W-2 form handy, which shows your pay for the previous year and taxes withheld. If you’re in business for yourself, have your income tax returns for the last two years available.
Proving Where You Live
Lenders need to verify your current address to help establish your identity, to establish where to send bills and other notices, and to pull your credit record. Thus, you need your most recent utility bill, such as a water, power or cable bill, which will contain your address.
- Federal Trade Commission: Consumer: Understanding Vehicle Financing
- Chase.com: Chase Car Loan Checklist
- Apple Federal Credit Union: Personal Banking -- Auto Loans
- Caltech Employees Federal Credit Union: Required Documents for Consumer Loan Requests
- Pennsylvania Insurance Department: Auto Insurance Guide
- California Department of Motor Vehicles: Vehicle Registration and Title Information
- Federal Financial Institutions Examination Council: Online Manual -- Bank Secrecy Act InfoBase
- Carnegie Mellon University: Buying a Used Car
- Oregon State Bar: Uninsured and Underinsured Drivers
Christopher Raines enjoys sharing his knowledge of business, financial matters and the law. He earned his business administration and law degrees from the University of North Carolina at Chapel Hill. As a lawyer since August 1996, Raines has handled cases involving business, consumer and other areas of the law.