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How much should I borrow on a car loan?
I want to buy a car, but I don't want to spend too much. If I’m taking out a loan, how much should I be willing to borrow?
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
If you don’t want to overextend your finances on a
car loan
, start by budgeting out your current expenses. Write down:- Your current income
- Your bills
- How much you might pay for insurance, gas, and maintenance of a new car
You should be able to see how much you can spend on a car loan by seeing how much income you have left after deducting the usual expenses. Another good rule of thumb is to limit your car payments to no more than 15% of your pre-tax income.
Then, start shopping around for car insurance rates using a service like
Jerry
. Lenders will probably require you to have a full-coverage
policy for the duration of your loan. When it’s time to choose a make and model of car, you may also want to use an online car affordability calculator, like the one on Edmunds or Cars.com.
You can also seek preapproval from a lender. When you get preapproved, the lender will examine your finances, income, and credit score and determine how much they’ll let you borrow. This can also help you narrow down your choice of car.
If you want to save some extra cash for a down payment, download the
Jerry
app to access car insurance savings. Jerry allows you to compare dozens of competitive quotes to get the best rate for your coverage needs.View full answer
- Gregory R.
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