New cars in a dealership parking lot

What is the most I can borrow to get a new car?

Navigating the car-buying process for a new vehicle can be daunting if you've never actually done it before. The complexity involved is much greater than walking into a store, picking up an item, and going home with it. A car's price tag is never set in stone until you've smoothed over its financing; and for some borrowers, the financing source and the amounts it's willing to lend will greatly affect the range of cars they can buy.  

That's why determining borrowing amounts for a car loan is not a one-size-fits-all sort of exercise. There are a number of factors that will influence the maximum number of dollars a borrower can get.

Let's run through them.

The Hard Cap

Many lenders will choose to put a hard cap on car loan funds. Rather than leave things open-ended or evaluate on a case by case basis, they will set a limit on what that loan could be: $30,000, $50,000, etc.

The same goes for comparison sources. For example, at Need-a-Loan, the most that a loan quote can be worth is $40,000.

LTV Ratio

Rather than setting a hard cap, some lenders will use a different type of metric to define their lending limits: the loan to value (LTV) ratio.

LTV shifts the focus from overall price to overall value. Often times—perhaps because of negative equity from a previous vehicle, driven-up dealer pricing, etc.—a borrower will require more money from a lender than what the car itself is worth. When this happens, it means that the value of the loan is greater than that of the vehicle—which is the asset that the lender is shelling out money for in the first place.

A high LTV ratio is risky for whoever's doing the lending. Because of that, it's a common practice to set limits based on LTV and not just pricing. So if you want to finance a car with a certain lender, than it's important to see if they have an LTV cap (120%, 130%, etc.) and check whether or not it is compatible with your money situation.

Borrower Profile

Sometimes there won't be a hard cap or maximum LTV ratio in place at all. When that is the case, it'll be because a lender is choosing to evaluate requests based solely on how the borrower projects to repay the loan—his or her 'borrowing capacity'—and not restrict right off the bat because of number requirements.

For example, just because someone is taking out a loan of $60,000, it doesn't necessarily make it riskier than a $15,000 loan. That $60,000 borrower could have just landed an incredible job out of law school and is only turning to a lender because he or she hasn't had the chance to earn money yet, but clearly will in a hurry. Meanwhile, the person borrowing $15,000 might have just gotten laid off and could already be dealing with credit card debt or some other type of setback. It's far less money than the other situation, but comes with a far greater likelihood that something could go horribly wrong in the repayment process.

Now, just because this is being brought up here and not in the other categories, it doesn't mean that a borrower's profile isn't considered when hard caps and LTV ratios are involved as well. Quite the contrary actually. Job situation, credit rating, outstanding debts, and all those types of details will play a huge role in determining rates no matter what.