July 14, 2017 by Space Coast Credit Union
If it’s time to shop for a brand-new car or a used car that’s new to you, you’re probably wondering how much you can borrow for a car loan. Generally, these three factors help lenders make that determination:
- How much you can borrow based on your income
- How much you can borrow based on the actual value of the vehicle
- How much you can borrow based on the down payment
Here is more detail about each of these factors...
A lender may tell you that your monthly payments on your house, cars, credit cards, school loan payments and the like should not exceed 36 percent of your gross monthly income. If that’s the case, determine what your combined gross monthly income is (income before taxes) and then multiply that by 36 percent. That tells you how much you can afford for all of your home and consumer debt payments.
Let’s say you earn $75,000 annually or a gross monthly income of $6,250. Multiply that by 36 percent and you’ll get $2,250.
Now, total up your monthly payments. Perhaps it looks like this:
- $900 mortgage payment
- $360 car (you plan to keep this car)
- $250 credit card payments
- $300 student loan payments
This totals $1,810. If you subtract that from your gross monthly income, this tells you that you can afford $440 for your new car loan payment.
If you’re buying a new car from a dealer, the actual value of the car often approximates the sticker price. Let’s say that you’re buying a $24,000 car that’s brand new. If you’re trading in another vehicle, that often is enough for a down payment. Let’s say you get $6,000 for your trade-in vehicle. If you’re not adding cash to the down payment, then you need to borrow $18,000 plus taxes and fees to cover the rest of the cost. If your rate is 3.49 percent, as just one example, and the term is 48 months, then your payment will be approximately $440, the maximum you can afford, income-wise.
If you’re buying a used car, you can expect to pay less than what you’d pay for a comparable brand-new model. Because rates can be higher for used cars, it can be helpful to do an analysis to determine if it’s better for you to buy new or used. Here is a calculator
to help with that.
Down Payment Factor
Let’s say you want to buy a used car and your lender will only loan 80 percent of the value (which may or may not be the same as the purchase price). This means you need to put down 20 percent, which could be a combination of a trade-in vehicle and cash. Do you have that 20 percent? This is another key element in determining what you can afford.
SCCU Car Loans
No two car financing scenarios are exactly the same. So if you’re ready to shop for a car and need to know how much you can borrow for a car loan, contact us online
or by phone:
- Brevard: 321-752-2222
- Broward: 954-704-5000
- Miami-Dade: 305-882-5000
- All Other Areas: 800-447-7228
Our team will guide you through the loan process. Once you have applied, we will review the entire loan application to determine how much of a down payment, if necessary, is required to fund your auto loan