If you’re in the market to purchase your first car, you’ll need to finance your purchase if you can’t pay for it in cash. When it comes to first-time buyer car loans, shopping around for the best rates is important because it can help you save a considerable amount of money.

There are also a number of things you can do to improve your chances of getting approved for a loan, such as improving your credit score and saving for a larger down payment.

Who Is Eligible for a First-Time Buyer Car Loan?

Before you start the application process for a first-time buyer car loan, it’s important to check with the lender about their eligibility requirements. In most cases, first-time buyers are usually those with no credit history or a thin credit history with no previous car loan.

Eligibility requirements vary by lender, but they’ll usually check your credit score and debt-to-income ratio for car loans. In most cases, you’ll need a credit score of at least 661 to qualify with a “prime” lender. However, you may still be able to qualify with some lenders, even with a lower credit score. 

A “prime” lender is a mortgage or auto lender that primarily deals with lower-risk borrowers, with low debt-to-income ratios, high FICO credit scores, and a positive recent history of auto loan payments. Prime lenders will often lend for longer loan terms and at much lower interest rates than subprime lenders. 

Your income must also be enough to support the new car loan payments, along with your current debt obligations. Your DTI ratio must typically be no more than 45% to 50% to get approved.

Top 3 Options for First-Time Car Buyers

Our review process to compile this list of the top three options for first-time car buyers includes a thorough analysis of direct auto loan lenders as well as aggregators. From the 20 lenders we reviewed, we selected our top recommendations based on loan amounts, interest rates and fees, and loan terms offered.

Loan Amounts: $2,500 to $100,000

APR: Starting at 2.99%

Loan Terms: 24 to 96 months

Loan Amounts: $8,000 to $100,000

APR: Starting at 5.99%

Loan Terms: 24 to 84 months

Loan Amounts: Minimum $250

APR: Starting at 4.54%

Loan Terms: 36 to 96 months

Pros and Cons of Car Loans for First-Time Buyers 

Before you take on any kind of debt, auto loan, or otherwise, it’s important to evaluate your options and weigh the pros and cons so you can make an informed decision.


  • Buying a car with an auto loan makes it more accessible by spreading out the expense compared to a cash purchase.
  • You won’t have to drain your savings account or spend your entire emergency fund to purchase a car.
  • You’ll be able to afford a much better car with an auto loan compared to what you could likely purchase if you pay in cash.
  • If you make timely payments, your credit score will improve over time since your recent payment history makes up about 35% of your FICO score.
  • You’ll own the vehicle at the end of the loan term, unlike leasing, where you’re only paying for the privilege of using the car.


  • Your monthly expenses may be high when you add the cost of insurance, which can be an average of $2,542 annually.
  • If you fall behind on your payments, it can significantly hurt your credit score, and unless you bring your payments current, it can lead to repossession.
  • When you purchase a car, you’ll have to drive the same car for a longer period of time, unlike leasing, which makes it easier to switch cars every 2-3 years.
  • If you have a higher-interest-rate loan and the value of your vehicle depreciates quickly, you may end up with an upside-down car loan, which may be a problem if you want to sell your vehicle at some point in the future.

8 Tips To Qualify for a First-Time Buyer Car Loan

When applying for a first-time buyer car loan, there are several steps you can take to improve your chances of getting approved. With a little effort, you may even be able to get a better rate, making the total loan cost more affordable.

1. Create a Budget

Start by creating a detailed budget to get a better idea of how much you can afford in car payments each month. You can also use a car affordability calculator to help you budget.

Follow the 20/4/10 rule, which suggests a 20% down payment, a maximum repayment term of four years, and a maximum transportation cost of 10% of your monthly net (after-tax) income. This is a good guideline to determine your budget for a new car.

2.Save for a Down Payment

For first-time buyers, we recommend saving a minimum of 20% of the vehicle’s price as a down payment. The less money you borrow, the lower your monthly payments will be. 

The lender will also consider you a lower risk and will be more inclined to approve your application because you will have more equity in the car than if you put a smaller down payment on it. Your lender will likely offer you a much more competitive interest rate when you have a larger down payment.

3. Research Car Loan Lenders

Don’t sign the agreement with the first lender that approves your application. Shop around to see what rates you may qualify for. Try to get pre-approved with multiple lenders and compare their respective annual percentage rates (APRs).  Because a loan’s APR includes all of the costs of borrowing money, including any upfront charges and/or ongoing fees, in addition to the interest rate, it will offer a much more accurate comparison. 

The interest rate you qualify for will depend on your credit score and debt-to-income ratio, among other factors.

FICO ScoreAverage New Car APRAverage Used Car APR
Superprime: 781 to 8505.61%7.43%
Prime: 661 to 7806.88%9.33%
Near Prime: 601 to 6609.29%13.53%
Subprime: 501 to 60011.86%18.39%
Deep Subprime: 300 to 50014.17%21.18%

Other than interest rates, consider the lender’s reputation, customer reviews, and any special incentives or rebates they offer to find the best possible deal.

4. Know and Improve Your Credit Score

Before you apply for a first-time buyer car loan, get a copy of your credit report from each of the three major credit bureaus (Experian, Equifax, and TransUnion). While the minimum credit score for car loans with prime lenders is 661, you may be able to get approved even with lower scores.

However, if you take the time to improve your credit score by paying down credit card balances, establishing an on-time payment history, and disputing errors on your credit reports, you will likely be able to get a better deal.

5. Get a Pre-Approval

A pre-approval for an auto loan will give you an advantage when you shop around for better rates. A preapproved offer will help you compare the APRs that you would very likely qualify for with different lenders once you settle on the vehicle you want to buy. This is an important part of the car-buying process, so be sure to compare at least three loan offers.

6. Negotiate the Price

Whether you’re buying a new car or a used car, it’s important to negotiate the purchase price of the vehicle. Despite the tight supply of vehicles we’ve seen since 2019 and the increasing popularity of “one-price, no negotiation” sticker prices at both new and used dealerships, there is still always room for negotiation in the car buying process. So, spend some time researching to determine the car’s value and the cost of available options so you can use that information during negotiation.

For example, when shopping for used cars, the dealership will often add $1,000-$3,000 to the price of a used car to cover the cost of simple yet unnecessarily high profit-margin “dealer-installed options” like window tinting, undercoating/paint protection, “lo-jack” style car tracker technology–and the ultimate unnecessary option–nitrogen-filled tires.  

Most often, you will hear the car salesperson tell you these dealer-installed extras cannot be taken off the car or the price, even though you didn’t want or need them installed in the first place.

Having a pre-approved offer in hand when you walk onto the car lot will always make it easier for you to negotiate the price. If that turns out to be impossible with the dealership you’re working with, don’t be afraid to walk away if you’re uncomfortable with any part of the car’s sale price or financing terms.

7. Use a Co-Signer

You can also improve your chances of getting approved for a first-time buyer car loan by adding a co-signer or co-borrower to your loan application. A co-signer will be responsible for paying off the loan if you fail to make payments. 

By taking responsibility for a loan where physical collateral (like a car) is being used as security for that loan, the co-borrower will not only have responsibility for the loan but will also have equal ownership of the vehicle that is purchased.

Either of these, if they have good credit, can help you get a lower rate on your auto loan.

8. Consider Refinancing Your Car Loan Later

After 6-12 months of on-time payments, you may be able to qualify for a lower interest rate. You may also wish to refinance your car loan after a year or so of payments in order to 1) shorten your loan’s term while making the same payments or 2) reduce your monthly payments on a new loan with the same term. 

Refinancing allows you to replace your existing loan with a new loan at a lower interest rate or a shorter/longer term. In either case, this will allow you to save a considerable amount of money on interest over the life of the loan.

Where to Apply for a Car Loan as a First-Time Buyer

It may be a little challenging to find lenders that offer financing to first-time buyers. However, there are several loan options to consider.

  • Many credit unions offer first-time car buyer programs to help new borrowers build credit. If you’re a member of a credit union, check to see if they offer such programs.
  • Marketplace aggregators work with a number of lenders, so they may be able to help you match with a lender that offers first-time buyers car loans.
  • Online lenders or car dealership finance departments also have a network of a dozen different lenders or more.
  • Car dealerships will also often have special programs, incentives, and flexible terms for first-time car buyers, especially recent college graduates or current/former Military members.

“For a car buyer looking to get approved for their first car loan, the best place to start when applying for pre-approvals is the bank or credit union where you have your checking and savings accounts,” says Brad Reichert, founder and managing director of Reichert Asset Management LLC. “Because they value your business as a deposit customer and can verify your income and financial assets (which could be used to make payments on the loan), they will be more likely to overlook a limited credit history and approve your car loan, even as a brand new borrower,” explains Reichert. 

Get Informed Before You Apply for a Car Loan

Buying your first vehicle is an important financial decision and requires a lot of research, budgeting, and shopping around for competitive rates. With so many lenders offering first-time buyer car loans, qualifying for a loan may not be difficult, but you may pay higher interest rates.

Budget your car expenses carefully to ensure you’ll be able to repay the loan. With on-time payments, your credit score will improve, so you may be able to refinance the loan at a low rate.