Bank Of America: Best Big Bank Option
Overview: Bank of America offers flexible and convenient auto loans you can apply for directly on its website. Rates are competitive, and you can qualify for additional discounts if youre an eligible Bank of America customer.
Perks: Bank of America will finance a minimum of $7,500 and requires that the car be no more than 10 years old, with no more than 125,000 miles and valued at no less than $6,000. Financing is available in all 50 states and Washington, D.C. Bank of Americas APRs start at 2.89 percent for a new car and 2.99 percent for a used car.
If youre a Bank of America Preferred Rewards customer, you can qualify for a rate discount of up to 0.5 percent off.
What to watch out for: If you’re applying online, the term range you can apply for is limited you can pick only a 48-, 60 or 72-month term.
Car Loan Calculator: How Much Car Can I Afford
Modified date: Nov. 16, 2021
How much should you spend on a car? Probably not as much as you might think.
You can spend between 10% and 50% of your gross annual income on a car. Thats a big range, we know, so if we had to set a rule, it would be this:
Spend no more than 35% of your pre-tax annual income on a car.
Lower is better, but we recognize personal finance is personal. You might spend more only if you can securely pay cash for your vehicle and the kind of car you drive is important to you. You can explore how much car you can accord in our car affordability calculator below.
You can limit how much money you spend on your car by:
- Saving up and paying cash.
- Buying used.
If you do both of these things, youll save thousands of dollars compared to financing or leasing a new vehicle.
That said, sometimes you need transportation before you have cash saved to buy a car. So there are some additional rules to consider when you get an auto loan.
How Much Car Loan Can I Get Approved For
- First things firstyou do not want to ask this question at the dealership.
- Your debt-to-income ratio is a huge factor in how much loan you can afford,
- Your credit score is a number assigned to a person that indicates to lenders your capacity to repay a loan.
Frequently, a car is a persons first major purchase. Its exciting, especially with all the cool features you can get these days. Everybody knows that your car is like your clothes. It says something about who you are so most of us arent inclined to grab the cheapest, most reliable thing on four wheels. But unlike clothes, most people have to borrow money to buy a car. So, before we start dreaming about what kind of car we want, we ought to explore the question: How much car loan can I get approved for?
First things firstyou do not want to ask this question at the dealership. Dealers will not be concerned about how much you can actually afford their goal is to sell you the most expensive car they can, because their commission rides on how much you spend. Though many of them will assure you they just like you so much, and want to help you get the best car, in fact they usually have very little interest in how this purchase will affect your life or ability to manage your finances in the future.
So, yeah, the cherry-red Lamborghini might be out of range, but how can you figure out what amount you can qualify for? Here are some things to look at:
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Shop For Car Insurance
Keeping your monthly payment under 10% of your gross income is the most important thing. Thats whats going to keep you from feeling pinched and stretched. Here are some of the top insurance providers on the market today that are operating in your local area. Find the policy that best suits your needs.
If you prefer to work with an agent, can help you save money. If youre an excellent driver, this insurer may be a great option for you. Sign up for Drivewise and earn as much as 25% back for every six months you go without an accident.
Those who have multiple types of insurance may want to look at . You can save big by bundling your auto policy with your renters, homeowners, or condo insurance. Their website makes it easy to get a quick quote to find out if you can save money by switching to them.
Related: Tips for Saving on Your Car Loan
What If Im Paying Cash
Paying cash for a car is always best. If youre able to, how much you have saved and what youre comfortable spending on a car can guide you rather than the 35% of monthly income. That said, you may want to check out this post that talks about the wider range of how much you should spend on a car based on your annual income.
Read Also: Auto Loan Usaa
Should You Get Prequalified Instead Of Preapproved
Getting preapproval for an auto loan is not the same as getting prequalified its a little more serious. When youre ready to buy, the cash-in-hand offer, or preapproval, is what can help you at a dealership, says Delvin Davis, senior researcher at the Center for Responsible Lending.
If you have no idea what your credit score is or what kind of loan you could get, prequalification is a low-risk way to find out. It only requires a soft credit pull, so you can get a ballpark estimate of what kind of rates you might get without damaging your score. But rates arent guaranteed they can only be as accurate as the limited information you provide for prequalification, so your final rate could be higher.
In general, wait to get preapproval until youre serious about buying a car and know your credit score because applying will have an impact on your credit. While neither guarantees funding, both can be good indications of your ability to secure financing and help determine how much car you can afford.
The Three Rules Of Car Financing
The rule of thumb when it comes to smart auto financing is the 20/4/10 ratio.
According to this rule, when buying a car, you should put down at least 20%, you should finance the car for no more than 4 years, and you should keep your monthly car payment at or below 10% of your gross monthly income.
Why is the 20/4/10 ratio smart? Heres why:
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Go Autos Car Loan Calculator
Purchasing a vehicle usually requires a significant financial investment. Even a modestly priced vehiclelets say $8,000 to $10,000is more than most people can afford to pay with cash. Which means most people need to take out an auto loan in order to buy a car. But loans come with monthly payments, and it can be hard to figure out how much youre likely to pay once you factor in things like the loan term, the interest rate, the payment frequency, and the trade-in value. To be totally honest, its pretty confusing. But dont worry. Our car loan calculator can do all the hard work for you.
State Bank Of India Car Loan Eligibility
|Employees of central and state government, public sector undertakings , private companies, reputed establishments
|Rs.2.5 lakh p.a.
|48 times of the net monthly income
|21 years to 65 years
|Self-employed professionals, businessman, partnership/proprietary firms
|Rs.3 lakh p.a.
|4 times gross taxable income or net profit
|21 years to 65 years
|Individuals involved in agricultural and allied activities
|Rs.4 lakh p.a.
|3 times of net annual income
|21 years to 65 years
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Set A Target Purchase Price
The total loan amount you can afford isnt necessarily the price of the car you can afford. If youre making a down payment or trading in your old car, youll be able to buy a higher-priced car, or borrow less money.
Additionally, there will be sales tax and fees, so think about more than just the price on the window sticker. Once you estimate the car loan amount you can afford, and assuming no trade-in credit or down payment, you can begin to get a realistic idea of the purchase price you should consider.
Youll need to factor in sales tax and fees, which vary by state, to the advertised cost of the car to get your total car price. An easy way to estimate these extra expenses is to add 10% to the advertised price of the car . For example, if you see a car advertised for $20,000, you should assume your total cost the out the door price will be $22,000.
If you want to get a more precise estimate, heres a breakdown of the typical extra costs:
Sales tax: Typically 5% to 10%, and may include state, county and local taxes.
Registration fees: Estimate these fees by using your states department of motor vehicles site.
Documentation fee: Ranges from $80 to $400, depending on your state.
This means that if you can afford a $20,000 car loan, again, assuming no down payment or trade-in credit, youll want to shop for a car with a sticker price of around $18,000 so that youll be able to cover sales tax and fees with your total loan amount.
Should I Get An Auto Loan From The Dealership Or The Bank
Choosing between a dealership and a bank for an auto loan is complicated. In general, dealerships may offer higher rates than banks but this may not be the case for used cars. Regardless, it’s important to get quotes from a few banks or online lenders first that way you can come to the dealership prepared. Ask for a quote from the dealership as well, comparing rates, terms and any additional fees.
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Simple Rules For Saving Money
1. Get preapproved for a loan before you set foot in a dealer’s lot.
“The single best advice I can give to people is to get preapproved for a car loan from your bank, a credit union or an online lender,” says Philip Reed. He’s an automotive expert who writes a column for the personal finance site NerdWallet. He also worked undercover at an auto dealership to learn the secrets of the business when he worked for the car-buying site Edmunds.com. So Reed is going to pull back the curtain on the car-buying game.
For one thing, he says, getting a loan from a lender outside the car dealership prompts buyers to think about a crucial question: “How much car can I afford? You want to do that before a salesperson has you falling in love with the limited model with the sunroof and leather seats.”
Reed says getting preapproved also reveals any problems with your credit. So before you start car shopping, you might want to build up your credit score or get erroneous information off your credit report.
And shop around for the best interest rate. “People are being charged more for interest rates than they should be based upon their creditworthiness,” says John Van Alst, a lawyer with the National Consumer Law Center.
If you take that bad deal, you could pay thousands of dollars more in interest. Van Alst says the dealership and its finance company, “they’ll split that extra money.”
How Much Would You Like To Borrow:
Please review and adjust your amounts for down payment, trade-in and cash incentive. Their current total is equal to orexceeds the vehicle purchase price.
Reminderthe minimum borrowing amount is $7,500. Therefore the total price of the vehicle less any down payment, trade-in, and cash incentive cannot be below this amount.
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How Do I Qualify For A Car Loan
Answered by Jim Manelis, car enthusiast and Chase Auto Executive.
You’ve found your dream car and can’t wait to get behind the wheel. Now, you have to figure out how to pay for it. Most car shoppers need to finance the purchase. That’s when you borrow money from a dealership or a lender and pay them back over time, usually with interest, to purchase a new or used vehicle.
How To Accelerate The Financing Process:
- Proof of identity: A photo ID with your signature on it. Government identification or a passport are typically acceptable documents. Check with your lender or dealership to see which they prefer.
- Proof of insurance: Dealers may ask you for proof of insurance before you purchase and take out a loan on your new or used vehicle. You can contact insurance companies from the dealership when you buy your car, or get details lined up with the insurance provider before purchasing the vehicle.
- In some cases, you’ll need proof of residence: A driver’s license is typically acceptable.
- If you’re trading in another vehicle as part of your financing, you should probably have your registration papers for your current vehicle.
- In some cases you’ll need to prove that you have a steady source of income, usually through several months of pay stubs or W-2 forms. Some lenders may also call your employer for verification.
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Car Loan Eligibility Calculator
Many banks, such as ICICI Bank, HDFC Bank, Kotak Mahindra Bank, etc., lets you calculate your eligibility for a car loan through a Car Loan Eligibility Calculator. This tool is available on the banks official website. Upon entering basic details such as your contact number, residence stability, type of employment, model and ex-showroom price of the car, etc., the tool will check if you are eligible for a car loan. The information you are asked to input, will vary from bank to bank and hence, it is recommended that you check the eligibility for specific lenders before you apply for a car loan.
When you are applying for a pre-owned car loan, you will be required to meet a few basic eligibility criteria. These requirements can differ from lender to lender. These are the criteria for some of the top lenders:
Wherever The Road Takes You Were Here To Help
Whether youâre buying your first car, ready to upgrade or looking for a new adventure, we can help you find and finance the vehicle thatâs right for you.
See How Much You Could Afford Today
Whatever the size of your business, we have the financing options that will help get your business on the road.
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How Your Credit Score Affects The Cost Of A Car Loan
Just because you can get an auto loan with a low credit score doesn’t mean that it’s always a good financial move to do so. Whether or not it’s a good decision depends on your unique situation.
For starters, lenders tend to offer significantly higher interest rates to subprime and deep-subprime borrowers. This can make a car far more expensive than its sticker price might lead you to believe. Here’s a look at the national average auto loan APRs as of Dec. 11, 2018:
|FICO® Score Range
|60-Month New Auto Loan APR
|48-Month New Auto Loan APR
|48-Month Used Auto Loan APR
Here’s what this means to you.
Let’s say that you want to buy a new car. You want to obtain a $30,000 loan to do it.
In this example:
- If you have a FICO® Score of 720 or higher: You will likely pay a $560 monthly payment. That’s $3,574 in interest over a 60-month car loan.
- If you have a 675 FICO® Score: Your payment would likely be closer to $610. That’s $6,611 in interest alone over the life of the loan — you’d pay $3,000 more in interest than a top-tier borrower.
- If your FICO® Score is 600: You’d probably pay $728 per month. That’s $13,673 in total interest — for the exact same car.
In this case, the difference between fair and good credit scores could literally mean more than $10,000 in additional interest.
How To Use The Reverse Auto Loan Calculator
If you know what you can afford each month, a reverse auto loan calculator can tell you how that translates into the total amount you can borrow. Of course, there are variables: the length of the loan and the interest rate you get.
Below you can see how your loan amount changes by moving the sliders for payment and loan term. We’ve provided average rates by credit tier as determined by Experian Automotive.
About the authors:Philip Reed is an automotive expert who writes a syndicated column forNerdWallet that has been carried by USA Today, Yahoo Finance and others. He is the author of 10 books.Read more
Shannon Bradley covers auto loans for NerdWallet. She spent more than 30 years in banking as a writer of financial education content.Read more
Using A Car With Negative Equity As Trade
You can fill in the rest of that ad with the name of just about any car and just about any dealership in the U.S. and the promise will be as empty as your bank account because it promises negative equity.
The ad plays on every station in every market in America and you have to admit its enticing enough to make you stop and think about doing it. Someone else bails you out of a bad loan situation and puts you into a new car with no out-of-pocket expense. Whats not to like about that?
Heres a word of advice from car-buying experts: DONT EVEN CONSIDER IT!
Trading in a car with negative equity to take on another car loan with even more negative equity is like throwing gas on a fire because its the only liquid you had handy. You just increased the chances for a serious financial meltdown and here is an example of why.
Lets say you owe still owe $10,000 on a car that is only worth $5,000. The dealer will pay off the $5,000 difference, but then roll that amount into the loan on your next car. So, if you needed to borrow $20,000 for the new car, the dealer rolls another $5,000 into the loan to cover the cost of paying off your previous loan and now youre borrowing $25,000.
Not only will your monthly payments be higher , but you likely will be paying higher interest on the loan.
And, dont forget, youre going to add more negative equity to your situation when you calculate the 20% depreciation in value the new car will lose when you drive it off the lot.