How much can I afford to borrow with a car loan?

How much can I afford to borrow with a car loan?

We value our editorial independence, basing our comparison results, content and reviews on objective analysis without bias. But we may receive compensation when you click links on our site. Learn more about how we make money from our partners.

Learn your limits when it comes to financing a car.

You’re ready to buy a car — and even have your eye on the new Nissan Leaf electric car. But can you afford it? Before taking out any kind of loan, understand what your personal borrowing power is tells you what you’re eligible for and can keep you from choosing terms you can’t afford.

Our top pick: car.Loan.com Car Loans

  • Min. Credit Score Required: 300
  • APR: Varies by network lender
  • Requirements: Must be a US citizen with a current US address and employed full-time or have guaranteed fixed income.
  • Easy online application
  • Fast response time
  • Bad credit, no credit OK

Our top pick: car.Loan.com Car Loans

Apply with a simple online application to get paired with a local auto lender. No credit and bad credit accepted.

  • Min. Credit Score Required: 300
  • Requirements: Must be a US citizen with a current US address and employed full-time or have guaranteed fixed income.
Promoted

How do lenders determine my borrowing power?

Lenders consider your monthly living costs and weigh them against your monthly income to see whether you can afford loan payments. However, it gets more involved when you start factoring in:

  • Multiple incomes
  • Credit card and loan debts
  • People who are financially dependent on you

Debt-to-income ratio and borrowing power

Another important factor that’s rolled in to how much you can borrow is your debt-to-income ratio. A good rule of thumb is that the debt you pay each month should account for no more than 40% of your monthly income — anything much higher may be seen as a red flag.

When it comes to your vehicle, financial specialists recommend that no more than 20% of your monthly take-home pay should be used towards car expenses.

Find a car loan that’s right for you

Updated March 22nd, 2019
Name Product Filter Values Minimum Credit Score Loan Term Requirements
300
Varies by lender
Must be a US citizen with a current US address and employed full-time or have guaranteed fixed income.
Apply with a simple online application to get paired with a local auto lender. No credit and bad credit accepted.
300
Varies by lender
Must be employed full-time or have guaranteed fixed income of at least $1,500/month and be a current resident of the US or Canada.
Get connected with an auto lender near you, even if you have bad credit.
Good to excellent credit
Good or excellent credit, enough income or assets to afford a new loan, US citizen or permanent resident, 18+ years old
Quick car loans from $5,000 to $100,000 with competitive rates for borrowers with strong credit.
Fair or better credit
From 2 years
Car must be less than 10 years old with fewer than 120,000 miles. Current loan must have a balance between $5,000 and $55,000 and at least 24 months left in its term.
Lower your monthly car payments and save on interest through a fast and easy online application process.
510
Varies
Income of $2,000+/month, vehicle has less than 150,000 miles and is no older than 8 years, loan balance is between $10,000 and $100,000, debt-to-income ratio is less than 50%
Connect with a network of over 150 lenders to refinance your car loan.
Good to excellent credit
Varies by lender
Must be a US citizen and 18+ years old. Must have good to excellent credit.
Compare multiple financing options for auto refinance, new car purchase, used car purchase and lease buy out.

Compare up to 4 providers

How to calculate borrowing power

Use the calculator below to find out what type of car loan you’re in the market for.

What else should I consider?

You should also consider recurring monthly expenses before you apply to give yourself a detailed breakdown of your budget. This will help you figure out if you have room for another expense. Look at your personal finances, including:

  • Essentials. Think about how much you spend on housing, food, utilities, commuting and other essentials you can’t live without.
  • Extras. What do you spend when you go out to eat? Is shopping for clothes twice a month something you can give up? An ideal loan won’t require you to make significant lifestyle changes. If you’re stretching your budget, a loan may not be the right financial move.
  • Costs of owning and maintaining a car. These include vehicle registration, licensing, insurance, gas, repair costs and countless others. Leave yourself some financial leeway.
  • Debts. Loan payments and credit card bills can add up each month. If they’re not taken care of when the bill is due, you could damage your credit score.

How can I increase my borrowing power?

There are a few different ways to convince lenders that you’re capable of taking on a bigger loan, however, it may take some time and effort. A few strategies you can use to get a bigger loan in the future are:

  • Spend less. Drawing up a budget and sticking with it can free up some cash flow and help you create less debt. And once your start spending less, you can take those savings and knock down whatever debt you’ve accumulated in the past.
  • Improve your credit score. Paying bills on time, decreasing your debt-to-income ratio, using your credit card responsibly and correcting mistakes on your credit report can nudge your score in the right direction.
  • Eliminate your debt. Cutting your debt minimizes your credit utilization ratio, showing lenders that you’re not desperate for a line of credit.
  • Ask for a pay raise. Doing a great job at work and think you deserve a raise? Draw up a case as to why you deserve a pay increase. This extra bump will decrease your debt-to-income ratio and make you appear as a more attractive borrower.
  • Compare. Every lender may look at your ability to borrow differently. This is why it’s extremely important to get a few quotes and do your research before moving forward with the first loan offer.
  • Get a cosigner. A cosigner promises to take care of the loan if you default, increasing your borrowing power. Only ask someone to be a cosigner if you’re sure you’ll have no problem making the payments on your loan.

Bottom line

Remember to take into account all fees and taxes including the cost of the vehicle when determining how much you can spend on a car. Now that you know what to expect from lenders and what kind of borrowing power you have, you’re ready to compare compare car loans.

Frequently asked questions

Was this content helpful to you? No  Yes

Ask an Expert

You are about to post a question on finder.com:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder.com provides guides and information on a range of products and services. Because our content is not financial advice, we suggest talking with a professional before you make any decision.

By submitting your comment or question, you agree to our Privacy and Cookies Policy and Terms of Use.

Questions and responses on finder.com are not provided, paid for or otherwise endorsed by any bank or brand. These banks and brands are not responsible for ensuring that comments are answered or accurate.
Go to site