car climbing a stack of coins

What's the most I can borrow for a car loan?

If you’re in the market for a new or used vehicle, you may be considering a car loan to help finance that purchase. Lenders look at your financial profile in order to come up with a loan specifically tailored to you.

Your monthly income, monthly debt payments and credit score will all affect how much money you can borrow from your lender. Other variables that affect the amount you can borrow include the security of your loan, the financial institution's particular loan caps, and your down payment.

Is there a minimum income?

Although it can vary quite a bit from lender to lender, the typical income required to take out a loan (with dismal credit) is around $1,500 per month in gross wages. “Gross” wages, of course, relates to how much money you make before taxes are taken out of your paycheque.

Secured vs unsecured loan

The type of car loan you take out also matters. If you’re going for a secured loan – one that is tied to one of your assets – you’ll be able to borrow a larger amount of money at a lower interest rate, just because there’s some collateral for your lender if you default.

Generally, most banks or private lenders offer secured car loans between $10,000 and $100,000.

If you’re looking for an unsecured loan – one without any collateral – you’re definitely going to receive a higher interest rate on the borrowed funds and it may require a guarantor to sign off on the loan agreement.

These types of unsecured car loans are sometimes understood as a personal loan, which will typically offer you between $1,000 and $50,000, depending on your financial history.

What about my credit score?

Since your income will be scrutinized, lenders will only offer or approve loans based on what borrowers can afford to pay; this is where your credit history comes into play.

Creditors look at your debt-to-credit utilization ratio. This ratio will show them how much money you spend towards your debts each month, how much debt you have overall and how much available credit you are able to use.

An attractive debt-to-credit ratio is between 30% and 40% or lower. Thus, if your available credit is $10,000 across all your available accounts, you shouldn’t have more than $4,000 of debt. Judging by this debt profile, your lender will offer you a loan based around how much wiggle room they think you have and how much they see you can pay back. Your ratio isn’t difficult to calculate either, and you should do this before applying for a car loan to see if it’s worth both your and your lender’s time.

Getting the quote

Once you understand which car you’re looking to purchase, how much available credit you have, and what your monthly income is, you’ll be able to get quotes from lenders who will offer you a loan based on the factors above.

There is no maximum car loan, but some lenders will set a “hard cap” on how much they can lend each person. There is also another thing to consider: the maximum amount that you can afford. At Needaloan.ca, we offer car loans of up to $40,000.

If you’re having trouble securing a car loan, you should check your credit report to see if there have been any errors made on it.