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m3v8
Posts: 59
Registered: ‎05-09-2010
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What loan can I afford with my income?

[ Edited ]

What percentage amount car loan to income should be? ....not sure, but I thought it was in range of 30% off total income? What income one should have for $50k car loan?  Any input is appreciated.

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ChemGuy
Posts: 286
Registered: ‎05-02-2007
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Re: What loan can I afford with my income?

As a rule of thumb the total monthly payment for the car should not exceed 10% of your monthly income.  So if you make 50K per year, your car payment should not exceed $416 per month.  Your total DTI should not exceed 36%, inclusive of all debts.

 

50K is serious cash outlay for a car.  Let's say you pay 50K "out-the-door", which means your final cost inclusive of tax, etc is 50K.  If you put no money down, 60 monhts and paid 4% interest (which is lower than normal, but with the current climate low rates are available), your monthly payments would be approximately $920!!  If you put 10K down, you would finance $40K car for $737 per month.  Obviously if you finance over fewer months, you pay more per month.  And if you get the interest as low as 1% and 10K down, you pay $683 per month.

 

Thus to finance a 50K car, you would want to be making ~110K per year.  But these are just ballpark numbers, and your situation may vary.  The bottom line, though, is that any way you slice it, 50K is a lot for a car.

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m3v8
Posts: 59
Registered: ‎05-09-2010
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Re: What loan can I afford with my income?

I concur... $50k for a new or pre-owned car is a lot of money, even if it's a dream car. A car is just a car, and it depriciates every year and every mile too. It certainly doesn't make a very sound financial sence to be financing $50k worth of a car... These days, car lease seems to be more practical and cheaper, if looking at it in terms of monthly payments... I wonder, what kind of person would go into a dealership and finance $50k... maybe someone like myself?

05/09 EX-573, EQ-578, TU-587
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ngerasimatos
Posts: 1,278
Registered: ‎06-01-2007
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Re: What loan can I afford with my income?

Sounds like my car payment.

 

2009 Lexus IS350, paying 924 a month for 60 months.

 

Its a great car, but a total waste of money.

 

Anyway, as was stated earlier. Most banks wont allow you to go more than 10% and that is also dependent on your DTI as well.

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buckeye3149
Posts: 10
Registered: ‎03-10-2010
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Re: What loan can I afford with my income?

Looks like lenders keep lowering the PTI ratios for car loans.

 

From a story on PTI ratios and auto loan income verification:

 

"Lenders used to have a 20 percent PTI limit, but now it's 15 to 13 percent, with some as low as 10 percent," Dupaquier says. "Lenders consider a 10 to 13 percent PTI best. The reality is that the cheapest car around is about $14,000 and about $200 a month is the cheapest auto loan payment on the market. The price of new vehicles has increased and pre-owned vehicles' upkeep is expensive."

 

http://www.autoloandaily.com/loan-news/featured-articles/2007-income-verification-why-you-need-to-pr...

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ngerasimatos
Posts: 1,278
Registered: ‎06-01-2007
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Re: What loan can I afford with my income?

I am looking at new cars myself, going to be buying my mother something soon possibly as she is old and has no credit whatsoever and her current car is very old.

 

In any case, every dealer I ahve spoken with regarding PTI says 10% is the new "rule" if income isless than 100k and ovr 100k its 20% as long as the DTI is low.

Try not to become a man of success but rather to become a man of value
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thrasher865
Posts: 1,157
Registered: ‎05-21-2008
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Re: What loan can I afford with my income?

[ Edited ]

Pulling up a thread that is almost a month old, but I would just like to know.  The 10-13% rule: is that net or gross income?  I have never owed money on a car, but my income can now support it and I'd like to finance a car ~18K to 24K.  Income is about 50k (~$3000/mo. net).  Which puts me at a monthly payment of about $300 - $390? 

 

Being that my mortgage is <$700/mo. and I live with my girlfriend, my DTI is super super low.  I was hoping that would play more of a factor than the size of the auto loan itself.  Oh well, just means I can save a DP faster.

 

 

[Edit:] oh goody :smileyhappy: bankrate.com's auto loan calculator says a $25k loan over 5 yrs with 4.5% interest rate is only $380/mo.   It appears I'm better off than I thought with my goals.  Maybe I wont need as big a DP as I thought.  I don't know where but for some reason I thought the price range I was looking in would have a much higher monthly payment.


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Valued Contributor
ngerasimatos
Posts: 1,278
Registered: ‎06-01-2007
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Re: What loan can I afford with my income?

Its based on Net, and your credit scores play into that % as well, higher the score the more leverage they allow. Also, since you live together, you can always use combined household income.

Try not to become a man of success but rather to become a man of value
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ngerasimatos
Posts: 1,278
Registered: ‎06-01-2007
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Re: What loan can I afford with my income?

Also, you may want to look at leasing. There are some very attractive lease offers out there right now. 

Try not to become a man of success but rather to become a man of value
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thrasher865
Posts: 1,157
Registered: ‎05-21-2008
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Re: What loan can I afford with my income?

I'm not familiary with the ups and downs of leasing, but I'll research it a little.  I've always heard that it was a poor option.  However, I remember someone explaining how it works once and I thought, it doesnt sound like too much of a rip-off.

 

Anyway, it's not my score that I'm worried about.  They were all in the 750 range until I charged up about 60% util on my CCs due to my final semester of school and not wanting to hold a job during that time.  0 late payments ever, no baddies of any sort.  6 years of history.  AAoA about 3.5 years (not the best, but enough for my scores).  I'm mainly worried about income and length of employment.  I won't be looking for a car for about 6 months or so, as I'm a recent graduate.  I was employed during school for 2 years part time in my field.  Only hired a month ago full time. 

 

Income is around 50k, and I'm looking at a 2006-2007 TL Type S for around 20K-24K.  If I can't be approved for that much, I'm certainly willing to settle for a TSX at around 17K-20K.  I'm just worried that with 6 months of employment history, I won't be approved for any amount.

 

Like I said, current DTI is really low even with only my income factored in.


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