Car insurance is one of those things you might not think about much — until you need to use it.

A range of events could require you to tap into your insurance. The most common include accidents involving another party, windshield damage, damage to a parked vehicle, theft or hail damage, according to The Hartford.

To get your insurance benefits, you’ll need to file a car insurance claim. Here’s what you need to know and the steps you’ll need to take to get back on the road as soon as possible.

1. Get to safety
2. Gather information
3. Contact your insurance company
4. Get back on the road

1. Get to safety

If there’s been some sort of damage-causing incident, the first thing to do is take care of yourself and anyone around you. Make sure the scene is safe.

Then, if you’ve been in an accident, or if someone has broken into, vandalized or stolen your car, call the police. They can help with safety and request emergency services if needed. In some states, you’re required to call the police after an accident, so make sure you know the law in your area.

Your insurance company will likely ask for the police accident report on the incident. The police report can serve as a record of what happened and helps make sure the insurance company gets accurate info. You can check in with the police to get a copy of the report, in many cases within a day or two of it being filed. 

2. Gather information

When something happens to your car, it’s normal to feel shocked — but it’s essential to stay focused on collecting accurate, thorough information to file your auto insurance claim.

• Take photos of any property damage. Photos provide a record of what happened to your car and any other vehicle(s) involved. Note where and when the incident happened and get photos of the scene, too, if possible. You’ll need as much detail as possible for your claim. If there has been a natural disaster, remember that even after a storm, fire or earthquake, the situation may be dangerous. Be careful and wait until conditions are safe to document the damage.
• Talk to the officials who respond. Get information from the police officer who responds to the incident. A badge number and a phone number will help if you need to follow up and get more information later on in the claims process. If your car has been stolen, give the police a thorough description of your car and license plate number. Share your vehicle identification number and registration number if you have them on hand.

• Hold onto any receipts. If you need towing, roadside assistance or any other services because of the incident, keep all receipts. The insurance company may reimburse you for them, based on your coverage.
• Don’t admit (or accuse) fault. You’ve probably been told to not admit fault at the scene of a traffic accident. That’s good advice — and it goes both ways. Leave determining fault to the officials, whether you think you’re to blame or someone else. The police and your insurance company can sort this out. Based on your state’s legal framework, the insurance company can determine how much fault — if any — each driver may hold.
• Note the other person’s information. Write down the other driver’s contact information, insurance company and policy number, make and model of the car, and license plate number and state. If possible, get the names of other passengers involved, too. If there were any other witnesses, write down their names and contact info as well.

3. Contact your insurance company

Contact your car insurance company as soon as possible, once you’re safe. Call the company’s claims number, which is usually on your insurance card (you should also be able to find it online). Many major companies allow you to file a claim online or through a smartphone app.

When you reach your insurer, explain what happened with as much detail as possible. This is where that information and documentation you took down at the scene comes in handy.

Accident

If you’re reporting an accident, your insurance company will try to determine who is at fault, based on inspections of the vehicles and property involved, info provided by those involved and any other available documentation, like photos or police reports.

If the other driver is found at fault, their liability coverage will likely pay for any damage to your car or your medical bills up to the policy limit. But if you’re found to be at fault, your collision coverage can help pay for repairs to your vehicle. If you have medical payment coverage or personal injury protection, your medical bills may be covered up to your limit.

Theft, natural disasters and other single-vehicle issues

If you aren’t in a multiple-car accident, one of two types of insurance coverage may pay for car repairs or replacement, depending on the scenario.

• Comprehensive coverage: Coverage for repair or replacement after theft, vandalism, natural disaster or damage caused by hitting an animal or falling objects (for example, a rock hits and shatters your windshield)
• Collision coverage: Coverage for repair or replacement of your car in a single-vehicle accident if your car rolls over or if you hit another car or object

Check with your insurance company to confirm whether you have comprehensive or collision coverage and ask about your deductible. Both are optional, but your auto loan lender may require these types of coverage if you lease or finance your car.

If you’ve experienced a car theft or break-in, let the claims representative know of any personal property that was inside the vehicle as well. Ask whether those losses will be covered under your auto insurance policy. If not, they may be covered under your renters or homeowners insurance.

Also, be sure to report the theft to your finance or leasing company, since it’s technically the owner of the vehicle.

Throughout the entire claims process, stay in communication with the insurance company. It can keep you updated on your claim’s progress.

Should I file a claim with my auto insurance?

Depending on the incident, you may decide against filing a claim and pay out of pocket to avoid a potential increase in your insurance premium. This might make sense if you were involved in a single-car incident and don’t have collision coverage, no one was hurt, no one else’s property was damaged, and the cost of the damages is less than your policy deductible — the amount you’ll have to pay out of pocket.

4. Get back on the road

After you provide the incident details to your insurance company, the next step is a vehicle inspection, if needed. An insurance claims adjuster or appraiser will evaluate your car’s damage and determine whether it can be repaired.

Scenario #1: Repairs

If the car can be repaired, the adjuster will provide an estimate for repair costs and may give you a list of nearby auto body shops. If you have an auto body or repair shop you prefer to use, the insurance company may be able to honor that request.

From there, the body shop will determine how long the repair will take.

The insurance company may pay the repair shop directly or instead pay you so you can handle the repair bill yourself.

Scenario #2: Replacement

If the vehicle damage is extensive, the insurance adjuster may determine that the car is a total loss. This means that the cost to repair your car is greater than the value of the car itself, or the vehicle is unable to be safely repaired. In this case, the insurance company may compensate you (or your finance company, if you finance or lease your car) for the actual cash value — the market value of the car at the time of the accident.

With a theft, your comprehensive coverage can work in a similar way. You or your finance company may get compensated for either the actual cash value or replacement cost value, depending on the policy you have. With a replacement cost value policy, the insurer may pay you for the cost of a new car that is the same make and model as your totaled car.

With some policies an insurance company may cover a rental car while your claim is processed and any repairs take place. Check to see if your policy includes rental reimbursement.

After your car has been repaired or replaced, check in with your insurance company to finalize any paperwork needed to close the claim.

What’s next?

The process of filing a car insurance claim can be similar across insurance companies. But who pays for damages, how much is covered and whether you are covered at all vary, based on your state and the details of the insurance policy.

That’s why it’s important to contact your car insurance company as soon as possible after an incident. They can help you better understand the claims process and your coverage.

It’s also a good idea to periodically review your car insurance policy documents, so you understand what’s covered in certain events. You may also benefit by shopping around to help make sure you still have the best policy and rates for your needs.

Leasing is fundamentally different from buying a new car.

Unlike financing to own a car, leasing a car allows you to drive a new vehicle for a period of time — often two to four years — and for a monthly payment that’s typically less than a finance payment.

Once your car lease is up, you may have different options depending on your lease agreement. The only option may be to return the car — but some lease terms include a purchase option.

There are a number of steps you’ll need to take before leasing a car, and several financial and legal terms you’ll want to understand. Follow this guide to learn how to lease a car.

• Step 1: Do your research and learn car-leasing terminology
• Step 2: Set a budget
• Step 3: Narrow your car search and visit a dealer
• Step 4: Negotiate your lease terms
• Step 5: Take care of your car
• Step 6: Understand your options for turning in your car or keeping it

Step 1: Do your research and learn car-leasing terminology

Car leases can be considered a low-commitment alternative to vehicle ownership. But car leases do come with many terms and conditions.

Most leases limit the number of miles you can drive and will charge you for overages or any notable damage when you return the vehicle. And returning your leased car early can be costly, too.

While you’re determining if leasing is right for you, you’ll also want to check your credit since you may need healthy credit to lease a vehicle. According to Experian, leasing companies typically look for FICO^® scores of 700 or better (on a scale with a range between 300 and 850), which FICO^® regards as a good credit score.

If you know that leasing could be right for you after researching the requirements that come with leasing a car, make sure to arm yourself with common leasing terminology you’ll likely encounter during your search.

• Lessor/lessee: The lessor is the company that grants you the lease, usually the vehicle manufacturer or auto dealer. The lessee is you — the person who is leasing the vehicle.
• Co-signer: The person who may act as a second guarantor on your lease so that you can qualify for the lease or for potentially better lease terms.
• Residual value: When your lease begins, your lessor will determine a future value for the vehicle, which is also known as the residual value. This will help determine your monthly payment. A higher residual value means the lessor expects less depreciation during your lease — often indicating the vehicle will retain its value better.
• Rent charge: This is the main cost of leasing a car, and is paid each month in addition to vehicle depreciation. This is similar to interest. Some other components of your monthly payment may include car loan amortization, sales or use tax and any miscellaneous fees.
• Disposition fee: If you return the vehicle at the end of your lease, you may have to pay a lease disposition fee, which helps the lessor prepare to sell the vehicle and can cover costs like vehicle cleaning, storage fees, administrative costs and more.
• Purchase-option opportunity: This refers to your option to buy the vehicle after your lease is complete. Typically, the lease will either state the purchase price from the outset in your contract or in a specified used-car handbook.

Step 2: Set a budget

Next, you’ll want to calculate how much car you can afford to determine how much you can spend on a monthly lease payment.

It’s also important to figure out how much money you have available for any down payment and any extra fees you might be responsible for at the time you lease a car.

Here are some fees and insurance options to consider.

Wear-and-tear coverage

If you’re a frequent driver who anticipates putting a lot of wear and tear on a car, opting into wear-and-tear coverage might be a good investment for you. You can easily pay for this coverage upfront, and then you won’t be charged for certain wear-and-tear damage at the end of your lease — within limits. Check with your leasing company to see what this protection would include on your lease — some companies cover up to $5,000 worth of end-of-lease charges. If this option sounds appealing, make sure to factor this into your pricing and budget.

Comprehensive and collision insurance

When you lease a car, you might have to buy additional, specific types of car insurance coverage if you don’t already have it. Comprehensive insurance may cover the cost of repairing or replacing your vehicle in the event of an incident, including theft, fire or other acts of nature.

Collision coverage is similar to comprehensive coverage, but it’s aimed at covering costs for repairing or replacing your car if it’s damaged in an accident with another vehicle or object.

Gap insurance

Many lessors will also require you to have gap insurance. This may be included as a cost in your lease agreement or you may have to pay for it separately — it will vary based on your lessor.

This is insurance coverage that fills the gap when the early termination payoff (excluding past-due amounts) exceeds the insured value of a totaled or stolen car.

Step 3: Narrow your car search and visit a dealer

With this information in hand, you can visit a car dealership and see what options fall within your price range.

You should shop for a car to lease as if you were buying it. Many of the same rules apply — take it for a test drive, consider the pros and cons, and find a vehicle you’re willing to commit to for the next few years.

You might find that not every car is available for leasing. Since leased cars are usually sold again, dealerships generally put their most popular makes and models up for lease. If you want a specific model or certain features, you might not be able to get it by leasing.

Sometimes automakers offer leasing specials, so it may help to shop around for lease deals online or visit your local dealership to see what’s available while you’re in the market.

Step 4: Negotiate your lease terms

You may think you can only negotiate when you’re buying a vehicle, but that’s simply not true. When lease shopping, terms like the mileage, cost of the vehicle and interest rate on the lease can all be negotiated.

This could help you get a lease contract that works better for your needs and budget.

Once you’ve selected your preferred vehicle and come to an agreement on the terms of your lease, it’s time to fill out the paperwork. If you’re approved, you’ll receive a contract that formalizes the agreement between you and the leasing company, and it will outline your use of the vehicle and your obligations. This is your lease agreement.

As you review your lease agreement, you’ll want to note your monthly payment, the amount due at signing, what maintenance you’ll be responsible for (and who pays for it), mileage limits, and any fees due, like the disposition fee and acquisition fee.

You should also confirm if your lease is a closed-end lease or an open-end lease. With a closed-end lease, when you return the car, you’re done — you generally don’t pay any additional amount unless there is excessive mileage or wear on the car, and you can just walk away.

With an open-end lease, you and the lessor agree at the start of the lease what you think the car will be worth at the end of the lease (its residual value). Then, when the lease ends, you have to pay any difference between its residual value and its “realized,” or market, value.

Always read the fine print of your lease agreement to ensure you don’t miss any important details.

Step 5: Take care of your car

Once you’ve signed your lease and driven off the lot, you should take good care of your car. Remember, you could be responsible for any and all damages during your lease term.

Getting extra covering and protection for the floors and seats of your newly leased car may not be a bad idea. You’ll want to keep your leased vehicle looking its best to avoid additional fees.

You’ll also have to keep up with routine maintenance. If you don’t, it could cost you at the end of your lease. While that oil change might be inconvenient, you’ll want to take care of the vehicle.

The good news? Some car leasing agreements include maintenance, so you won’t have to pay extra for it.

If at all possible, keep your vehicle for the whole term of your lease. If you terminate your car lease early, you may have to pay an early termination charge, which is typically the difference between the lease payoff amount and the value of the vehicle. That charge can be several thousand dollars.

Step 6: Understand your options for turning in your car or keeping it 

Once the end of your lease term approaches, you’ll want to understand what your options may be: returning your vehicle, buying your leased car (if allowed in your contract), getting another leased vehicle or buying a different car altogether.

Follow this timeline to help guide your decision.

Two to three months before your lease ends

Depending on the terms of your lease, you may have several options when it ends, including buying it outright to keep the car or getting a new vehicle. You may also have the option of extending your lease.

Now is a great time to reevaluate your budget and take a look at what’s on the market and what kind of deals may be available to you.

If you’re considering buying the car after your lease ends, you’ll need to know the purchase-option price of the vehicle. This is typically either stated as a fixed dollar amount in your lease agreement or will be determined by the vehicle’s fair market value in a used-car guidebook.

You’ll also need to schedule a lease-end inspection. There may be some variation in this process, depending on the lessor, but this will typically be 60 to 90 days before your lease’s end and will determine if you need to make any repairs to your vehicle before returning it.

You should also take care of any repairs or maintenance you may need, like windshield repair or new tires. It’s also worth checking to ensure that you have everything that came with the car, including both sets of keys, all floor mats, a spare tire or charging equipment.

Many manufacturers have online leasing checklists that detail your return timeline and what’s involved in the vehicle inspection, including what’s considered normal versus excessive wear and tear.

If you’re thinking about buying out your lease, two to three months before your lease’s end is a good time to talk to your lessor about that process.

One month before your lease ends

Now’s the time to schedule your inspection, if it hasn’t taken place already, and find a time and date to return your leased vehicle.

If you want to buy out your lease, this is the time to start shopping for auto loans. That way you can aim to get your financing in order, and you can make your car-buying experience a smooth transition.

The day before your lease ends

It may sound obvious, but don’t forget your important personal items in the car. Things like garage door openers, toll transmitters and parking permits are easily forgotten.

It also won’t hurt to give your car a good wash and vacuum, wipe down the interior and spot treat any small stains. Go into the final inspection with your car looking its best.

Day of your lease return

This is when you’ll drop off your car for good if that’s the decision you’ve made. Don’t forget to take along your spare key as you part ways with the vehicle.

Verify with your lessor that everything is settled. You may have to sign documents like an odometer disclosure statement. Make sure all the terms of your lease agreement have been satisfied.

If you’re leasing a new vehicle, you’ll start this process all over again with the same lender or a different lender.

Bottom line

While car lessors may have different ways of handling leases, returns and charges, there are common elements. Becoming informed about how lease agreements work is a key first step in being able to walk away from your lease satisfied when it ends.

Getting an online car loan from the comfort of your couch may sound ideal, but there could be some drawbacks.

Applying for a car loan from an online lender may be convenient, with some lenders offering lower rates than you might find with traditional banks. But not all online car loans are created equal.

Let’s take a deeper look at the pros and cons of car loans from online lenders — and how you can help make sure you’re getting an offer that works well for you.

• The benefits of online car loans
• Drawbacks of online car loans
• Tips when shopping for an online car loan

The benefits of online car loans

Car loans from online lenders can be a good financing option for some, especially those who are short on time or who are looking for lenders who might be willing to work with borrowers with poor credit. Here are some benefits of an online car loan.

Competitive interest rates

Some online auto loan lenders might offer lower interest rates compared to traditional banks. For example, if you have good credit, the APR on a 60-month loan for a new car could be as much as two percentage points higher from a traditional bank than online lender rates. That difference may seem small, but interest can quickly add up.

For example, a $25,000 auto loan with a 60-month term and 3.5% interest rate would result in a monthly payment of about $455. The same loan with a 5% interest rate would require a monthly payment of almost $472. That monthly difference adds up to an extra $1,020 paid on the higher-interest loan over five years.

Some companies, like Credit Karma and myAutoloan.com, allow you to check out various lenders in one place so you can easily compare offers, interest rates and loan terms.

Convenience and speed

Applying for a car loan from an online lender can be quick and convenient. You can apply for a car loan from an online lender regardless of time of day or location — all you need is a computer and internet access. And depending on the lender, you may be able to find out if you’re prequalified within minutes. If you get prequalified, the lender will let you know the estimated loan amount, interest rate and loan term you may be approved for. You must still submit a formal application to be considered for the loan.

More lenders to choose from

Some online lenders might be more willing to work with borrowers with bad credit. But pay close attention to the interest rate and loan terms. Typically, the poorer your credit health, the higher your car loan interest rate.

Some online lender sites feature a car loan calculator that can help you get a sense of what your monthly payment might be based on your credit scores, the amount you want to finance, your preferred loan term and your down payment.

Drawbacks of online car loans

Given their benefits, online car loans could seem like a good choice. But before you apply, here are some things to consider:

Interest rates can vary widely

While the interest rates offered by some online lenders could be lower than what traditional banks offer, rates can still be higher if your credit health is poor. Some online lenders that offer loans to borrowers with bad credit charge APRs that reach 25% or more. This rate is much higher than the average car loan interest rate for subprime borrowers, which was 11.89% for new cars and 16.14% for used cars in the third quarter of 2018, according to a report by Experian.

Some lenders may be unfamiliar

As you research your options, you may come across some online lenders you don’t recognize. Before you provide your personal information to a lender or lending network, do a little digging. Check the Consumer Financial Protection Bureau for any consumer complaints about the company. The Better Business Bureau features complaints as well as consumer reviews.

Tips when shopping for an online car loan

If you want to apply for an auto loan online, here are a few tips to keep in mind as you’re looking for an auto loan.

1. Shop around. To help identify the best car loan offers for you, you should get quotes from several online lenders. You should also consider getting some quotes from banks or credit unions to compare.
2. Pay attention to any fees. Auto lenders may charge fees such as a loan origination fee or prepayment penalty — a fee for paying off all or some of your loan early. Be sure to read the fine print so you’re aware of any immediate or potential costs.
3. Don’t borrow more than you can afford. If you’re using an online lender’s auto loan calculator to estimate the maximum amount you can borrow, make sure that you’re staying within your monthly payment budget. Keep in mind that these calculators may not include fees and taxes. You’ll also want to consider additional costs, such as ongoing maintenance, insurance, vehicle registration and gas when putting together your budget. Establishing a budget for your car purchase and sticking to it can help you make sure you can afford your car loan.

Bottom line

Depending on your financial situation, an online car loan could be a good option. But an online car loan isn’t a one-size-fits-all solution. Take some time to do your research. Even if your time is limited, you can easily and quickly research lenders.

If you’re struggling to get approved or are only being offered hefty interest rates, it could help to consider a smaller loan for a less expensive car. Or you can wait to save for a larger car down payment to reduce the amount you need to borrow. You may also want to focus on building your credit, which might help your chances of approval down the road.

A private-party auto loan is one way to get the cash you need to buy a vehicle from a private seller.

Buying a used car from a private seller could help you save money. For example, sale prices tend to be lower through private sellers than dealerships.

But private parties don’t offer financing (and you should be very careful if they do). That’s where a private-party auto loan can come in. With a private-party loan, you get the perk of financing as if you were buying from a dealer — while getting the savings that a private seller may have to offer.

• What banks offer private-party auto loans?
• What is a private-party auto loan, and how do they work?
• How do I get a private-party auto loan?
• Should I get a private-party auto loan or personal loan?

What banks offer private-party auto loans?

Not all big banks offer these loans, but here are a few that do.

Good for competitive rates: Lightstream

Lightstream’s private-party auto loans feature competitive rates. To get the lowest rate possible with Lightstream, you must set up autopay and have excellent credit. On top of the low rates it offers, Lightstream says it can fund your loan on the same day that you apply (though the accessibility of your funds may depend on your bank).

Read our review of Lightstream auto loans to learn more.

Good for one-on-one support: PNC Bank

If you prefer a personalized experience over applying online, PNC could be a good fit for you. To apply for an auto loan from PNC, you must visit a branch in person. If you live in one of the states where PNC operates, you may be able to take advantage of the PNC website’s guidance and instruction as you go through the process of getting a private-party auto loan.

Learn more about PNC Bank’s auto loans in our review.

Good for an unsecured option: U.S. Bank

U.S. Bank allows borrowers to use an unsecured personal loan to buy a car from a private party. This option isn’t a traditional auto loan — but U.S. Bank personal loans have competitive rates, and you won’t be putting your car at risk by using it as collateral.

Learn more about U.S. Bank personal loans.

What is a private-party auto loan, and how do they work?

Private-party loans are similar to other auto loans because they’re typically secured loans, with the car serving as collateral. So just like with typical auto loans, if you default on the loan, the lender can repossess the vehicle.

And also like other auto loans, private-party loans have an annual percentage rate and fixed loan term that affect your monthly payment. Depending on the lender, private-party loan terms typically range from 12 to 84 months.

Interest rates can also vary based on your credit and state of residence as well as the loan amount, loan term and any discounts, like an autopay or customer discount. The lender may also factor in the age of the car you want to purchase.

Private-party auto loan APRs are typically higher than the interest rates for used cars you’d buy at a dealership.

How do I get a private-party auto loan?

Some large financial institutions, as well as some smaller, regional banks, credit unions and online lenders offer private-party auto loans. Keep in mind that some lenders have restrictions on vehicles they’ll finance, like age or mileage — or they may charge a higher interest rate on older vehicles or those with a lot of miles.

Compare offers

It’s always a good idea to get quotes from multiple lenders and compare them to find the best offer for you. Consider more than the monthly payment when reviewing offers — factors like loan term, APR, fees and penalties (including prepayment penalties) can affect how much you pay over the life of the loan. For example, a longer loan term could result in lower monthly payments, but you’ll likely end up paying more in total loan interest. An online auto loan calculator can help you run the numbers.

While you shop around for a private-party loan, you may want to apply to get preapproved for a car loan. Preapprovals can trigger a hard credit inquiry, which could lower your credit scores by a few points. Multiple hard inquiries could affect your scores more heavily.

To help minimize some of the negative effect to your credit while comparing offers, apply for multiple preapprovals within the same time period. Depending on the credit-scoring model, multiple inquiries that fall within a 14- to 45-day window might count as one inquiry, which may only affect your scores minimally. 

How to apply for a private-party auto loan

To formally apply for a private-party loan, you’ll need to fill out an application with the lender you choose. You’ll be asked to provide some information about the car, which may include the vehicle identification number (or VIN), make and model, model year and mileage. You’ll also be asked for personal information, which could include your Social Security number, address, employment and income. The information you need to provide will vary by lender.

The lender will review this information, along with your credit, to determine whether you qualify and what the loan interest rate and terms will be.

Once you’ve chosen a loan, you may need to provide additional information and documents to your lender, like the vehicle registration, vehicle title, bill of sale and a payoff quote.

Depending on the lender, you may get a check for the agreed-upon sale amount that’s made out to the seller or the lienholder (if it isn’t the seller), or the loan amount might be deposited into your bank account after the loan closing.

Should I get a private-party auto loan or personal loan?

An unsecured personal loan may be an alternative to a private-party auto loan, but a private-party loan may be the less expensive option. Unsecured personal loans often have higher interest rates because the loan isn’t backed by collateral, like a car.

While a personal-loan interest rate can range from around 4% to 36% or more, a report from credit bureau Experian showed that average used-car interest rates in the fourth quarter of 2023 had an average interest rate of 11.93%.

But it’s not always easy to find a lender that offers private-party auto loans, and you may have a preferred bank that you already work with. In general, it’s a good idea to look at several lenders and consider your options before committing to a lender.

Next steps

When you want to buy a car from a private seller and don’t have the cash, a private-party auto loan might be your best option.

Just remember to account for the higher APR that typically comes with a private-party auto loan when determining your used-car budget. To learn more about auto loans and all their moving parts, check out our guide to understanding a car loan.

FAQs about private-party auto loans

If your financial situation has changed or you just want better car loan terms, refinancing your car loan could be a good move.

Refinancing a car loan involves taking on a new loan to pay off the balance of your existing car loan. Most of these loans are secured by a car and paid off in fixed monthly payments over a predetermined period of time — usually a few years.

There are many reasons that you might consider refinancing your car loan. Maybe your credit has improved and you might qualify for a lower interest rate, or your financial situation has gotten better and you want to remove the co-signer from your original loan. Refinancing with a new loan could mean getting better terms and rates that are more in line with your current financial needs and long-term plans.

Read on for tips to help you determine if a refinance is right for you, and to learn how to refinance a car loan.

• Step 1: Determine if auto refinancing makes sense for you
• Step 2: Collect the necessary documents
• Step 3: Consider applying for prequalification
• Step 4: Apply for an auto refinance loan
• Step 5: Pay off your old loan and start making new monthly payments

1. Determine if auto refinancing makes sense for you

While refinancing can offer many benefits, it’s not a one-size-fits-all solution. Before going too far into the process, ask yourself these questions.

What’s the state of your current auto loan?

Revisit the terms of your current loan so you can compare them apples to apples when you shop for auto refinance opportunities.

When shopping, look for the following:

• Current monthly payment
• Time remaining on the loan
• Current payoff amount
• Interest rate

Then consider your goals: Are you interested in lowering your monthly payment? Or just looking for the lowest interest rate? Remember that extending the life of your loan will likely cost you more in the long run, while shortening it can save you money.

Is there a prepayment penalty?

If your current loan has a prepayment penalty, it may not be worth trying to refinance. A prepayment penalty means that you’ll be hit with a fee for paying the loan off early.

What fees will you be responsible for?

There could be fees needed to reregister the vehicle and transfer the title after refinancing. These fees vary by state, so it’s worth looking into what it costs in your state before refinancing.

Is your loan balance higher than the value of your vehicle?

Kelley Blue Book offers resources and tools for finding used-car values. If the outstanding loan amount is higher than the car’s market value (referred to as being upside down on a loan), you may have trouble getting approved for a new loan or see little difference in the new loan terms offered to you. Some lenders may allow you to roll the outstanding balance on your current loan into your new loan, but keep in mind that this will add to your overall debt.

How old is your car?

Lenders may have restrictions on whether they will refinance a car. For example, some lenders won’t allow a refinance on cars over eight years old or with more than 100,000 miles on the car.

Has your credit improved?

If your credit has improved, refinancing could result in a lower interest rate, which could save you money in interest over the life of the loan. But if your credit hasn’t improved, getting a lower rate may be difficult unless interest rates have dropped since you got your current loan.

If you’re not sure, check your credit to get an idea of where your credit’s at. Checking your credit reports can also help you identify any potential errors that may be impacting your credit scores and work on disputing them.

2. Collect the necessary documents

If you decide to move forward with a refinance, you’ll need to gather some documents and information before you can start the process. Here’s some of the information you may need to have on hand.

Personal information

You may need information like your Social Security number, previous addresses, and how much you pay in monthly mortgage or rent payments.

Proof of income

Lenders want to know that you’ll be able to repay your loan. A paycheck stub or a tax return may be needed. You might also be asked to provide your employment history.

Evidence of auto insurance

You may need to provide proof of insurance to your lender. If so, you’ll need to prove this to your lender with an insurance card or other proof of insurance.

Information on your current loan

You may need to know the balance on your current auto loan, as well as that lender’s information. It will also be helpful to know your interest rate and length of the loan when shopping to make sure you’re getting better offers.

Information about the car

You’ll want to have the make, model, mileage and year handy. The vehicle identification number, or VIN, can often be found in the driver’s side lower corner of the windshield, though the exact location may vary depending on the make and model of the car.

3. Consider applying for prequalification

Take some time to shop around and see which offers you may qualify for. Applying for prequalification can be a good place to start. To get prequalified, the lender will look at certain information, like your credit and type of vehicle. Prequalification is typically considered a soft inquiry, which won’t hurt your credit all on its own. But prequalification is not a guarantee of approval, and if you decide to apply for the loan, you’ll ultimately have to apply for it — and face the hard inquiry that goes along with it.

Some credit-scoring models account for rate shopping by allowing you to lump multiple auto refinance applications during a certain time frame into one hard inquiry. This window can vary by credit-scoring model.

For example, VantageScore 3.0 counts multiple inquiries within a 14-day window as a single inquiry, while some newer FICO models lump credit inquiries within 45 days into one inquiry.

Check around with several lenders and compare the interest rates, loan terms and total cost of borrowing available to you. Find out if any of the loans qualify for an autopay discount. Opting into this feature may lower your interest rate and help ensure you don’t forget a payment — a win-win for you.

You may be tempted to choose an offer with a longer loan term, which could result in a lower monthly payment. But keep in mind you’ll end up paying more in interest and increase your risk of becoming upside down.

Above all, consider the main reason you want to refinance and whether each loan’s terms address that need.

By doing your research, you can be more confident that when you choose a loan you’re selecting the best offer available to you.

4. Apply for an auto refinance loan

Once you’ve shopped around, collected all of your information and made a decision, you’re ready to apply.

You’ll need to complete a loan application for the lender you choose. This is where the documentation you gathered can come in handy, as you may have to provide it in the application. This application will count as a hard inquiry, which can lower your credit scores by a few points.

If your loan is approved and you sign the loan paperwork provided by the lender, you should get a document from your lender with all the terms of your new loan. Keep a copy for your records, as it will include details on when your payment is due, the minimum amount you’ll need to pay each month and your options for making loan payments.

5. Pay off your old loan and start making new monthly payments

Depending on your lender, much of the transition from your old loan to your new one can be taken care of by the lender. For example, your new lender might pay off your old loan. But be sure to reach out to your previous lender to get confirmation that it’s been paid in full before you stop making payments on that loan.

Once your original loan is paid off, you can focus on making on-time payments on your new loan each month, which may help boost your credit. You can use Credit Karma’s Auto Refinance Calculator to estimate your monthly payments and how much you may be able to save by refinancing your current auto loan.

What’s next?

Refinancing can be a great way to find an auto loan that best fits your needs. By taking the time to collect key information and do your research, you may get better loan terms that can save you money by providing a lower rate.

If you aren’t sure whether an auto loan refinance is right for you, consider other ways you might be able to lower your car payment.

FAQs about refinancing your car loan

While there’s no universal minimum credit score required for a car loan, your scores can significantly affect your ability to get approved for a loan and the loan terms.

In the fourth quarter of 2022, people who got loans for a new car had an average credit score of 738, and those who got loans for used cars averaged 678, according to the Q4 2022 Experian State of the Automotive Finance Market report.

Lower credit scores can mean fewer offers and higher interest rates. But don’t throw in the towel if your scores aren’t where you want them to be.

Read on to learn more about how your credit scores affect your odds of getting a car loan and ways you might increase your chances of approval and potentially receive better offers.

• How do my credit scores affect my car loan?
• Ways to increase your odds of approval and a better interest rate
• Which credit score is used for car loans?
• What are the factors that make up my credit scores?

How do my credit scores affect my car loan?

Your credit scores can affect your ability to get a car loan and the interest rate and terms you may be offered.

Before you begin car loan shopping, it’s generally a good idea to check your credit scores and understand how they can influence the terms you get from auto lenders for a new- or used-car loan. This is also an opportunity to check your credit reports for errors that could be bringing your credit scores down.

Car loan rates by credit score

This table shows the average auto loan rate for new- and used-car loans based on credit scores, according to Experian data from the fourth quarter of 2022.

As you can see, having a good credit score (considered “prime” or “super prime”) will give you a lower interest rate on your loan than an average or lower credit score. And having poor credit (considered “deep subprime”) means you’ll pay high interest rates.

A few extra percentage points may not seem like a big deal — but when that percentage is applied to the thousands of dollars that car loans typically amount to, it adds up quickly.

Here’s how this plays out in reality. Let’s say two borrowers — one a prime borrower and the other subprime — want to finance $10,000 for a used car. They both have a 60-month loan term. The subprime borrower is offered a 17.46% rate — the average for borrowers in this range in the fourth quarter of 2022, according to Experian. The prime borrower is offered the average 7.83% rate.

Over time, the subprime borrower will pay back about $15,060, or $5,060 in interest. The prime borrower will pay about $2,117 in interest, for a total cost of $12,117. That’s a difference of about $2,943 in interest paid — and in this case, it all came down to credit scores.

Taking steps to improve your credit could increase your chances of getting approved for a loan with better terms, keeping more money in your pocket in the long run.

Ways to increase your odds of approval and a better interest rate

If you’re in the market for a new car now or in the near future, there are a few steps you can take over time that could potentially increase your chances of getting approved for a loan or qualifying for a lower interest rate and more favorable terms.

Work on your credit scores

Working on your credit scores could unlock lower interest rates and preapprovals by more lenders. Your scores are largely dictated by whether you pay your bills on time and how much debt you have. Focusing on these two important factors could be a huge help in improving your credit.

Save for a down payment

Making a down payment on a car loan could help your chances of getting approved and may result in a lower rate. Plus, paying more upfront will decrease the amount you need to borrow, which can mean less interest paid overall.

Consider a co-signer

Having a co-signer with higher credit scores on your loan may help you get approved more easily or get a better interest rate.

Keep shopping

If you haven’t found a rate and loan terms that work for you, continue looking. Credit Karma can help by showing your estimated loan term, interest rate and monthly payment amount across lenders.

Which credit score is used for car loans?

Credit-scoring models from FICO and VantageScore are most commonly used for auto loans, but lenders may also use the industry-specific FICO^® Auto Scores.

With the FICO Auto Scores, FICO first calculates your “base” scores — your traditional FICO scores — then adjusts the calculation based on specific auto risks. These scores help lenders determine the likelihood you’ll make your auto loan payments on time. FICO Auto Scores range from 250 to 900 points.

What are the factors that make up my credit scores?

No matter the scoring model, there are some keys to having higher credit scores. The charts below show what factors make up two popular credit-scoring models, the FICO^® 8 credit score and VantageScore^® 3.0 models.

Image: ccupdateutilization-fico

Image: ccupdateutilization-vantage

Payment history

Banks want you to pay back what you borrow. That’s why your payment history, which is the history of how many on-time payments you’ve made on loans or credit cards, is a major factor affecting your credit scores. Making late payments will cause your payment history to be less than 100%, which can harm your credit scores.

Credit utilization

Credit utilization is a way of calculating how much of your total available credit you’re using. Generally, it’s best to keep your total utilization as low as possible — most experts suggest keeping it under 30%.

Age of accounts

The age of credit history indicates how long you’ve had credit cards or other loans open. The longer your average account age, the more it can help your credit scores. Meanwhile, having several newly opened accounts may not help your credit scores because it will lower your average account age.

Account mix

Your account mix, or the types of credit accounts you have, may be a factor in determining your credit scores. Lenders generally like to see that you have a history of making on-time payments on a variety of credit accounts rather than just one type. So a mix of credit cards, plus other loans — like auto loans, student loans or mortgages — may help you build your credit scores.

Inquiries

Hard and soft inquiries happen when you apply for credit, or sometimes when you set up utilities or rent an apartment. Hard inquiries typically stay on your credit reports for two years. And if you have a large number of hard inquiries in a short period of time, it may lower your scores because lenders could view you as a borrower who’s seeking credit.

Next steps

Now that you know a bit more about how your credit scores might affect your odds of getting a car loan, it’s time to put your knowledge to work for you. First, check your credit scores and reports so you have an idea of how they stack up. You can get a free copy of your credit reports periodically from the three major credit bureaus on annualcreditreport.com. And you can check your Equifax and TransUnion credit reports anytime on Credit Karma.

If you can wait a while to buy a new vehicle, make a plan to work on any areas that might be keeping your credit scores lower than you’d like. But if you need a car sooner rather than later, be sure to shop around and compare loans across lenders — such as banks, credit unions and online lenders — so you can find the best rate and terms for you.

Check out this article for more tips on getting a car loan. After you buy a car, keep working on your credit scores. Building up your credit could allow you to refinance your auto loan for a lower interest rate in the future.

FAQs about minimum credit scores needed for car loans