Loan Affordability Calculator Calculator
Frequently Asked Questions
What is debt-to-income ratio and why does it matter?
Debt-to-income (DTI) ratio is your total monthly debt payments divided by your gross monthly income, expressed as a percentage. Lenders use DTI to assess your ability to repay loans. Most lenders require DTI below 43%, while financial advisors recommend keeping it below 36% for financial health.
How much should my car payment be relative to my income?
Financial experts recommend keeping car payments to 10-15% of your gross monthly income. Additionally, your total debt-to-income ratio (including the car payment) should stay below 36% for optimal financial health, though lenders may approve up to 43%.
Can I afford a car loan if I have existing debt?
Yes, but it depends on your debt-to-income ratio. If your current DTI is below 20%, you have room for a car loan. If it's already above 30%, you should be cautious. Calculate your new DTI including the car payment to ensure it stays below 36-43%.
How does loan term affect affordability?
Longer loan terms (72-84 months) lower monthly payments, making loans appear more affordable, but they increase total interest costs and keep you in debt longer. Shorter terms (36-60 months) have higher payments but save money overall and build equity faster.
