One of the most important things you have to do before you apply for a car loan is to work out how much you can borrow. There is no point looking for a car to purchase if you have no chance of getting an approval so that's why you should always talk to your lender first.
But the fact is, no to lenders are the same and there can be large differences in the amount you will qualify for. That's why it pays to shop around first. One of the better ways to get an idea of your borrowing capacity is to look at some on-line calculators. Many lenders provide this facility somewhere on their website to give you an idea and this is a great starting point.
The most important thing to consider above all is whether you can afford your loan. You may face a situation where our lender is prepared to lend you more than you thought, but the bottom line is you are the one that has to make the monthly repayment and if you are not comfortable you should reconsider your position.
There are some steps you can take to make sure you are getting the best possible loan and at the same time maximize the amount you can borrow for your car.
- Do a budget. This is one of the most common steps left out by most borrowers. It is really important to lay out a spread that contains all of your income and all of your necessary outgoings. You should be really honest with yourself here and make sure you list every obligation you have including credit cards, any other existing loans, your home loan and your necessary monthly expenses including food and entertainment. This is the only way you will determine how much you can really afford for a car loan.
- When using on-line calculators make sure you include every liability you have. Some borrowers take a blasé approach to this and only enter their income to establish their borrowing capacity. You will be sorely disappointed if you do not include all of your liabilities because, when it comes to making a formal application, your bank will ask you to list all of your current liabilities and this is the way they determine how much you can borrow.
- Shop around. As stated above, every lender has their own particular criteria and there can be fundamental differences between lenders. As long as the monthly repayments fits within your budget and you qualify for the loan, you are good to go. Get at least three comparative quotes before you make your final decision, and do not forget to try an online lender as well because sometimes they offer special deals at lower rates of interest.
There is no simple formula for determining exactly how much you can borrow for a car loan. As long as you have steady full-time employment and have been in your job for at least six months then, as long as your income is sufficient in the eyes of the lender, you will qualify for a car loan.