One of the first questions people ask when thinking about car finance is: "How much can I actually borrow?"
The answer depends on several factors, and understanding them can help you set realistic expectations before you start shopping.
How Lenders Calculate Your Borrowing Capacity
Lenders look at your ability to repay the loan without financial stress. They assess:
1. Your Income
Your regular income is the starting point. Lenders want to see stable, consistent earnings. They'll typically look at:
- Base salary or wages
- Regular overtime (if consistent)
- Commission or bonuses (often averaged over time)
- Rental income
- Government benefits (some lenders accept these)
2. Your Existing Debts
Any existing financial commitments reduce what you can borrow. This includes:
- Other loan repayments
- Credit card limits (even if you don't use them)
- BNPL accounts
- Child support or alimony
3. Your Living Expenses
Lenders estimate your cost of living based on your situation (single, couple, family) and location. Some use the Household Expenditure Measure (HEM), while others look at your actual bank statements.
4. The Loan Term
A longer loan term means smaller repayments, which can increase your borrowing capacity. But remember — longer terms mean more interest paid overall.
A Rough Guide to Borrowing Capacity
While every situation is different, here's a rough idea based on annual income:
Estimated Borrowing Capacity
These are rough estimates only — actual amounts depend on your full financial picture.
- $50,000 income: $15,000 – $25,000
- $70,000 income: $20,000 – $35,000
- $100,000 income: $30,000 – $50,000
- $150,000 income: $45,000 – $75,000
These ranges assume minimal existing debt. If you have other loans or high credit card limits, your capacity will be lower.
The Debt-to-Income Ratio
Many lenders use a debt-to-income (DTI) ratio as a guide. They typically want your total debt repayments (including the new car loan) to be no more than 30-40% of your gross income.
For example, if you earn $6,000/month gross, lenders might cap your total monthly debt repayments at around $1,800-$2,400.
How to Maximise Your Borrowing Capacity
- Pay down existing debts — especially credit cards and personal loans
- Reduce credit card limits — even unused limits count against you
- Close unused accounts — BNPL, store cards, old credit cards
- Show stable income — avoid job changes right before applying if possible
- Save a deposit — borrowing less means easier approval
- Consider a longer term — lower repayments can help (but weigh up the extra interest)
What If You Can't Borrow Enough?
If your borrowing capacity is lower than you hoped, you have options:
- Look at cheaper cars — there are great options at every price point
- Save a larger deposit — reduces the amount you need to borrow
- Add a co-borrower — a partner's income can boost your capacity
- Wait and improve your position — pay down debt, build savings
The Bottom Line
Your borrowing capacity is based on what you can comfortably afford to repay, not just how much you want to borrow. Lenders are required to ensure you're not taking on more than you can handle.
Want to know exactly how much you can borrow? Apply for a free quote and we'll give you a realistic figure based on your actual situation — no obligation, no credit check for quotes.
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