Moderator please move this thread from "Ford Escape/Mercury Mariner Hybrid" into right category on www.cleanmpg.com What is a good amount to borrow when applying for an auto loan online? I'm about to apply for an auto loan online. I am not sure what amount to ask for or loan term. I can afford $250-$300 a month. Any ideas?
Hi, This is a fuel economy site....we don't specialize on finances, although saving fuel is spending wisely. We are not qualified to give advise on auto loans, because among other things, we are not privy to your income and financial history. Please do not put links for online auto loans as that is against our spamming policies. Thank you.
Although this post is indeed a bit off topic in a fuel economy forum, as noted above, I'd like to throw in a couple of rough guidelines for guesstimating affordability based on a strict monthly payment budget. It may be an interesting read for any readers who may be wondering if they can afford a more fuel efficient automobile in today's thinner-wallet economy. If you are starting from the point of how much you can afford for a car payment, you can determine a rough guess as to how much you can finance while remaining within your specific payment limit. For an example, we will use $300 a month. To calculate the amount you can finance, you will need to know the interest rate and duration of the loan. The numbers I use below are for loans at 5% and 10% (used car loans for people with great credit and not-so-great credit), for terms of 4 and 5 years. 4 year loan at 5% - Take your monthly payment limit, multiply it by 48, and then multiply that total by 0.90. The result is the most you can finance while staying under your budgeted monthly payment. 4 year loan at 10% - Take your monthly payment limit, multiply it by 48, and then multiply that total by 0.82. The result is the most you can finance while staying under your budgeted monthly payment. 5 year loan at 5% - Take your monthly payment limit, multiply it by 60, and then multiply that total by 0.88. The result is the most you can finance while staying under your budgeted monthly payment. 5 year loan at 10% - Take your monthly payment limit, multiply it by 60, and then multiply that total by 0.78. The result is the most you can finance while staying under your budgeted monthly payment. Using the example of $300 a month, and getting a 4 year loan at 5%: (300 x 48) x .90 = $12960 financed The same $300 a month, 4 year loan, 10% interest: (300 x 48) x .82 = $11808 financed Bear in mind that this only shows the overall amount you can borrow and still hit the payment budget, and any money you apply up front as a down payment reduces the finance amount. But if you can get, for example, $2000 in cash or trade value, you add that $2000 to the amount you can finance, and that is how much "car" you can afford. Remember to leave a buffer for sales tax, and allow $150 for title & tags and you should be in the ballpark.
Hey MaxxMPG, How do get those numbers? .9, .82 & .88, .78 I'm admittedly too lazy to figure this out. - Dale
I have them on an old spreadsheet I created based on some online loan calculators. The numbers provided turn out just under the maximum monthly limit you specify when you multiply everything together. You can get closer to the exact monthly payment number, but to do so you need to go more than two decimal places for that multiplier. There are lots of payment calculators online, but they can be hard to find. So I posted the information above as a quick and easy method for people to determine how much principal they can afford based on their budgeted payment. If you notice that all the factors above are roughly between .8 and .9, you can quickly multply in your head to decide if you can afford, for example, a $16000 used Prius, by thinking "300 a month x 60 is 18000, and 90% of that is 16200 and 80% of that is $14400, so if the car in the ad is 'asking $16000' I can make it fit within my budget".
