What is the procedure of getting an auto loan?

Question

I am a new international student in the US. My credit score is 702 in the Capitalone credit wise and 710 in the CreditKarma website. I am a fully funded PhD student and have an annual income around $30,000 from the university.

What I am looking for is getting an auto loan of amount $10,000-$15,000 to buy a used car from a private party(my priority) or a dealer. But I don't know the procedure. I found that I must go through a bank or credit union, apply for a pre-approval loan, and after they accepted my offer I can go to dealership and negotiate to buy a car(This is all I could find from Youtube videos). But I don't know what will happen after this?

What if I want to buy from a private party?

When the bank/credit union give me the money? Do they give it to me or to the seller?

Should the seller come to bank/credit union to get the money?

May someone explains the entire process? Specially after I get approved for the loan.

Answer 1

I am going to assume that you are already member of a US bank or Credit Union, and you have a Savings account and/or checking account with that financial institution.

The bank/CU will have on their website the application you need to complete to get approved for the loan. Their application will also tell you what proof you need. It would be bank statements (which they already have), and pay stubs. They will do a credit check as a part of the process.

If the loan is approved they will tell you the maximum amount of loan, the minimum amount of down payment, the rate and the number of months. They will put the maximum amount in a letter you can show the dealer.

When you negotiate the price at the dealership, they will also want you to apply for a loan from their lender. It is likely to be a worse deal, so don't agree to it. Also getting the loan from the dealer makes the negotiating much more complex.

Once the deal is agreed to, you can then show them the letter from the bank. At that point one of several things could happen.

• They will ask you for a small down payment to hold the car, while you go back to the bank to get a check.
• They will ask you to fill out a loan form, ask for a small down payment, and let you drive the car to the bank to get the check. If you can't give them a check in 3 days their loan will takeover.

When the bank/credit union give me the money? Do they give it to me or to the seller?

Should the seller come to bank/credit union to get the money?

The check will be a cashiers check made out to the dealership, the dealer doesn't need to be there. The dealer will be able to tell you what words need to be on the check and the amount. The bank will give you a check, the amount will be from the maximum loan amount and the down payment you have paid and the amount that the bank requires you to make.

For example:

• Maximum loan $15,0000

• Required down payment that the bank requires $3,000

• Amount you already paid the dealership $1,000.

• Negotiated price. $17,000

• Amount of the check $17,000 - $1,000 = $16,000

• Amount from loan $14,000

• Additional funds withdrawn from you bank account by the bank $2,000

The bank will require that you include them on the paperwork, and require that they are listed as a owner with you and that they have a lien on the car. You may have to go to DMV to complete the paperwork, or the dealership can do it from their location. The dealership can provide temporary license plates.

Don't forget an auto insurance policy, which the state may require, and the lender will require. The lender and the state will define the minimums for the insurance policy.

What if I want to buy from a private party?

This gets more complex. You will have to go to DMV to complete the transaction because you will have to do all the paperwork and you will need license plates. You will be worried about the proof that the seller owns the car and that they properly transferred it to you. They are worried that the check isn't real.

Answer 2

What if I want to buy from a private party?

Check around with different lending institutions but check first with the bank/credit union where you have other accounts. Some will lend in the case of a private part sale but others will not. The main problem is title delivery with the lien properly executed.

When the bank/credit union give me the money? Do they give it to me or to the seller?

Probably not. You may be able to arrange with them to meet with the seller at one of their branches where they give the seller the money and the seller gives them the title. This can be a logistical problem and is part of the reason why many banks don't deal with private sellers.

Should the seller come to bank/credit union to get the money?

See previous answer.

May someone explains the entire process? Specially after I get approved for the loan.

You may be better off finding a car at a reputable dealer who will arrange financing themselves with a bank, credit union, or credit agency. They will get paid by the lender directly, they will ensure the title has the lender's lien on it, and you will get the car. In the USA this is the most common way people arrange financing on cars. Most dealers like this method because they get a commission on the financing as the lender's agent.

Alternatively you can arrange your own financing and in many cases the auto dealer already works with that lender. If not they may contact that lender and work things out but in some cases they won't do it.

As noted above, private sellers complicate this and also the lenders are reluctant because they have little to no recourse against a private seller who sells a junker or doesn't deliver the title as expected.

Expect to pay a significantly larger down-payment and pay a higher interest rate for a private seller deal even if the lending company does allow those.

The last way is to simple save up the money and buy the vehicle outright. That removes all the lending complexities but, of course, it does require you to save up or to buy a less expensive car that you can pay for now.