The Car Buying Guide for Extreme Savers









Amount You Can Borrow Based on Income and Credit Score

There's a big difference between what you are willing to pay and what you can afford to pay for your car loan.

Many people, especially those with bad credit, may be willing to pay a large amount each month but lenders will only approve loans based on what borrowers can afford to pay.

The main thing lenders look at is your debt to income ratio (DTI), the percentage of your monthly gross income that goes toward paying debts.

Lenders like to see a DTI ratio of 40% or less, which means if you bring in $5,000 of income each month, your debt payments should be no more than $2,000.

Debt includes any installment loans such as car payments, student loans or personal loans, plus any rent or mortgage payments. It also includes your minimum monthly credit card payments. Normal expenses such as groceries and utility bills are not included as part of your debt.

In general, here is how lenders view your DTI ratio:

36% or lessThis is the ideal debt load for most people.
37% - 42%Borderline high
43% - 49%Financial problems likely to occur unless debt is reduced.
> 50% Very dangerous debt level. Need to reduce debt immediately.

If you have an excellent credit score and a decent level of disposable income, then your DTI ratio won't really matter. People with higher than average income ($7,000 + per month), those with disposable incomes of at least $3,000 per month, and those with very large down payments of 50% or more won't have to worry much about the amount they can borrow.

On the other hand, if your credit isn't that great and you have a lot of debt, then you really need to figure out what kind of payment you're likely to qualify for.

Here's a quick guide to the kind of loans you're likely to qualify for based on credit score and income.

Credit ScoreMax DTI RatioMonthly PaymentMax TermNotes
720 +N/A30% of gross monthly income60+ monthsLenders will allow any reasonable payment based on disposable income
640 - 720Less than 50%20% of gross monthly income60+ months
590 - 639Less than 45%17% of gross monthly income48 months
530 - 589Less than 40%15% of gross monthly income36 monthsMany lenders will limit loans to a maximum of $6,000
< 530Less than 35%15% of gross monthly income24 monthsMany lenders will limit loans to a maximum of $5,000

What you need to do is first check your credit score, then get a financing quote from online providers to see what kind of payment you qualify for.

You can then compare that figure to the charts above to make sure you're within the acceptable range. If you're not able to borrow as much money as the charts indicate, you may have some errors in your credit report (See: How to Fix Errors in Your Credit Report).

My Recommendation for New Car Shoppers


TrueCar No-Haggle and Edmunds Price Promise are the quickest way to see the lowest prices available on new cars in your area. Both tools provide upfront prices from local dealers, and the deals are usually really good. It should be the first step you take when negotiating car prices. You should follow that up with my checklist to make sure you get the best possible deal.
- Gregg Fidan

Gregg Fidan

About the Author: Gregg Fidan


Gregg Fidan + is the founder of RealCarTips. After being ripped off on his first car purchase, he devoted several years to figuring out the best ways to avoid scams and negotiate the best car deals. He has written hundreds of articles on the subject of car buying and taught thousands of car shoppers how to get the best deals.

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