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In general, during his life, a borrower will make two main investments: his main residence and the purchase of one or more cars. To make this possible, the latter will go to his bank to get a loan. In the case of a vehicle, your banker will advise you to take out a car loan .
Below this income, the bank may consider that the borrower will have difficulty in properly repaying the money borrowed on time, but also that the increase in financial pressure on his budget could lead to a deterioration in his living conditions.
Car loan: how much can I borrow?
The lender will rather discuss your borrowing capacity . However, this consumer credit, like any bank financing, is issued subject to a conclusive study of your borrower profile. The credit organization in charge of the analysis will examine several elements such as your financial, professional and personal situation.
From this perspective, your income is compared to your expenses, thus establishing the total amount that you can borrow, in line with your situation and without jeopardizing the repayment of this loan, and more generally your living conditions. To understand how this ratio is determined, it is necessary to know what elements are taken into account. Your bank will take into account your salary, your property income, the pensions received as well as your assistance (allowances). The sum of these items constitutes your income. To obtain the borrowing capacity, it will be enough to oppose this result to the fixed expenses of the household.
If banks pay great attention to this value, it is because it is extremely significant in their eyes. Precisely, the borrowing capacity allows to visualize the maximum amount that can be borrowed by the interested party. This is essential information when a borrower begins the process of financing a future purchase project, such as a car.
Our expert advice:
Before you blindly launch into the acquisition of a vehicle, it is advisable to carry out credit simulations in particular to know your borrowing capacity. This will give you more visibility on the purchasing possibilities available to you to guide you towards the appropriate model.
What debt ratio for a car loan?
Of course, borrowing capacity is not the only element studied when analyzing your borrower profile. Before granting you its jurisdiction for your car loan, the credit institution has a range of documents to check. More specifically, it will focus its attention on whether you have any current loans.
Indeed, if you are in the process of repaying installments, this means that part of your income is already dedicated to this expense item. The higher it is, the higher the expected debt ratio will be. In this case, a new application for consumer credit risks cooling off potential lenders, because the chances of a default during the repayment period of the car loan are greater. Namely, your debt ratio cannot be higher than 35% after taking out this new loan to finance a vehicle. Simply, you cannot allocate more than 1/3 of your income for the repayment of your outstanding credit. A limit that is not written into the law, but which is recommended to avoid payment difficulties.
Good to know: these amounts and monthly payments are for information purposes only, they do not take into account your potential credits currently being repaid. This table assumes that your debt ratio is currently not affected.
Avoid payment incidents
A banking transaction must be based on a relationship of trust between the lender and the borrower. In this image, your profile must not present any anomaly that could cause doubts in the mind of your banker. Managing your bank account seriously, without bank overdraft, but also presenting no failure to pay your previous monthly payments, has the effect of maximizing your chances of obtaining a favorable response to your auto loan application.
To inspire confidence, it is essential that this additional debt does not have an uncontrollable impact on your life. Thus, your banker will refer to your remaining income, that is to say the portion of income remaining after the repayment of credit charges. This must be sufficient for you to be able to live comfortably, not only you alone as such, but also your spouse and children. Also, a stable source of income, such as a permanent employment contract, can be an additional burden when looking for financing to purchase a vehicle.
How to get a car loan with low income?
It is true that, although there is no minimum salary to obtain a car loan, having a comfortable income can simplify the path to acquiring your future car. Be careful, if you are not in this situation, this does not mean that modest income is synonymous with refusal within credit organizations.
First of all, the first thing to do is to multiply the contacts. Indeed, if one bank refuses you, it may be different for the bank next door, given that each establishment has its own borrowing criteria. If your many attempts do not prove fruitful, it would be good to change your approach and think about a different and less expensive model than the initial one. If the final decision remains negative, wait until your financial situation improves (decrease in your debt ratio, increase in your income) in order to give more weight to your file.
With this in mind, consolidating your loans could make it easier to buy your new car. Indeed, this banking transaction allows you to reduce your monthly payments. The bank contacts your creditors and repays the remaining total. As a result, you will be able to take out a new single loan with a monthly payment adapted to your borrowing capacity and review the repayment period. At the same time, it is possible to finance a new project through this financing solution.