What Happens When You Apply for a Car Loan?
Dealerships have a department specifically for car loans. When you approach an employee of this department (generally called the Finance and Insurance [F&I] Department), they will ask you to fill out a credit/loan application. On this loan application, you will be asked for your social security number, date of birth, current and previous home addresses, a list of employers, sources of income, and financial information on existing credit accounts.
The dealership will get a copy of your credit report, which will tell them about your current and past credit obligations and your payment records. On each account, your credit report shows the terms of the account, credit limit, and a comments section describing the current status of your account, including a summary of past due information.
The dealer will then, typically, sell your contract to a financing company in order to determine their willingness to buy your contract from the dealer. These companies will evaluate your credit information based on computer generated point assignment where certain factors are weighted more heavily than others.
Since the financing company only sees the credit report, it bases its evaluation solely on the information in front of them including the amount of down payment on the car.
If the financing company decides to buy your contract then you will receive an interest rate which may be able to be modified by manufacturer incentives, such as reduced finance rates or cash back. Then you can attempt to negotiate the annual percentage rate (APR) with the dealership just as you negotiated the price of the car. Your negotiated APR rate is usually higher than the wholesale rate, however.
