When it comes getting a car loan, it’s important to understand how much you can afford to borrow based on your income or salary. Many auto finance companies typically use a Debt-To-Income Ratio (DTI) to determine whether you can afford to repay your auto loan, and what your maximum auto loan amount should be. In general, car loan lenders prefer borrowers to have a DTI of 40% or less. This means that your total monthly debt payments (including your new car loan payment) should be no more than 40% of your gross monthly income.
Most car loan lenders also use a Payment-To-Income (PTI) ratio of 12.5%, which means that your monthly auto loan payment should be no more than 12.5% of your gross monthly income. It’s worth noting that auto finance companies may use both the DTI and the Payment-To-Income (PTI) Ratios to determine your eligibility for a car loan and the maximum car loan amount you can borrow.
If you are aiming to accurately determine the amount you can afford for a car loan, you can use our Car Loan Affordability Calculator. The calculator takes into account your annual salary, the trade value and payoff of your current vehicle, as well as the average dealer fees, government fees, and sales tax applicable in your state.
If you want to get a quick estimate of how much you can borrow based on your income use the tables below which use a fixed interest rate based on various credit tiers, the most common car loan term of 72 months, and a monthly payment of 12.5% of the listed monthly income.
How Much Car Can You Afford with Good Credit?
People with a credit score above 660 are considered to have a good credit score.
- Estimated Interest Rate*: 4.9% APR
| Monthly Income | Maximum Loan Amount |
| $2,000 | $15,600 |
| $3,000 | $23,500 |
| $4,000 | $31,300 |
| $5,000 | $39,100 |
| $6,000 | $46,900 |
How Much Car Can You Afford with Fair Credit?
People with a credit score between 600 and 660 are considered to have a fair credit score.
- Estimated Interest Rate*: 8.12% APR
| Monthly Income | Maximum Loan Amount |
| $2,000 | $14,200 |
| $3,000 | $21,300 |
| $4,000 | $28,400 |
| $5,000 | $35,500 |
| $6,000 | $42,600 |
How Much Car Can You Afford with Poor Credit?
People with a credit score between 500 and 600 are considered to have a poor credit score.
- Estimated Interest Rate*: 10.79% APR
| Monthly Income | Maximum Loan Amount |
| $2,000 | $13,200 |
| $3,000 | $19,800 |
| $4,000 | $26,400 |
| $5,000 | $33,000 |
| $6,000 | $39,600 |
How Much Car Can You Afford with Bad Credit?
People with a credit score below 500 are considered to have a bad credit score.
- Estimated Interest Rate*: 13.42% APR
| Monthly Income | Maximum Loan Amount |
| $2,000 | $12,300 |
| $3,000 | $18,500 |
| $4,000 | $24,600 |
| $5,000 | $30,800 |
| $6,000 | $36,900 |
As you can see from the tables above, the maximum auto loan amount decreases as the interest rate and credit tier worsen. For example, someone with excellent credit and a monthly income of $6,000 could potentially borrow up to $46,900, whereas someone with bad credit and the same monthly income would only be able to borrow up to $36,900. A $10,000 difference! This highlights the importance of maintaining a good credit score and paying your debts on time.
It’s also worth noting that these tables are just a guide and don’t take into account other factors that lenders may consider when assessing your loan application, such as your employment status, auto loan repayment history, and other financial obligations. Additionally, borrowing the maximum amount you’re eligible for may not be the best financial decision, as it could lead to a high debt-to-income ratio and make it difficult to meet your monthly obligations.
In conclusion, understanding how much you can afford to borrow based on your income should be the first step in your car buying process. By using the tables above as a guide, you can get a rough idea of your maximum car loan amount based on your credit tier, interest rate, and monthly income. Be aware that these figures are just estimates and shouldn’t be taken as a definitive answer.
AutoByPayment.com offers accurate estimates of new car loan payments based on self-selected credit score, current rebates, down payment, and trade equity or negative equity, without customers having to provide their personal identifying information such as email and phone.
*Estimated Interest Rate Based on Credit Tier Source: Experian Q4 2022