The amount you can borrow for a car loan is primarily determined by your financial profile: your income, credit score, existing debt, and the car's price. There's no single number, but lenders typically use a Debt-to-Income (DTI) ratio—your total monthly debt payments divided by your gross monthly income—to assess risk. A DTI below 36% is generally favorable for approval. Your credit score directly influences the Annual Percentage Rate (APR) you'll receive, which significantly impacts your monthly payment and the total loan amount you can afford.
Lenders also consider the Loan-to-Value (LTV) ratio, which compares the loan amount to the car's value. Most prefer an LTV of 100-120%, meaning you might need a down payment if you're buying a car with a loan amount that exceeds its value. Your credit score is a major factor in the interest rate you'll qualify for. The table below shows average new car loan APRs by credit tier, based on recent data from credit reporting agencies like Experian.
| Credit Score Tier | Average New Car Loan APR | Average Used Car Loan APR |
|---|
| Super Prime (781-850) | 5.61% | 7.62% |
| Prime (661-780) | 7.73% | 10.38% |
| Nonprime (601-660) | 10.95% | 16.42% |
| Subprime (501-600) | 14.84% | 21.32% |
| Deep Subprime (300-500) | 16.85% | 23.71% |
To estimate your affordable loan amount, use the 20/4/10 rule as a guideline: aim for a 20% down payment, a loan term no longer than 4 years, and monthly car expenses (payment, insurance, fuel) that don't exceed 10% of your gross monthly income. For example, if you earn $5,000 monthly, your total car costs should be under $500. A $400 payment would leave $100 for insurance and gas.
Before shopping, check your credit report for free at AnnualCreditReport.com and use online auto loan calculators to model different scenarios. Getting pre-approved by your bank or credit union gives you a firm budget and negotiating power at the dealership.
