Is there a minimum salary requirement for a car loan?
Is there a minimum salary requirement for a car loan?
Posted on June 12, 2019
One common question we hear at Car Nation Canada is about minimum salary requirements. Particularly whether there is a minimum requirement for earnings to qualify for a loan. The short answer is there is no minimum salary requirement but there is a little more to it than that.
Lenders will use your income to determine a loan’s affordability. Lower salaries will likely mean a lower amount you can borrow but will not usually prevent you from borrowing at all. You may need to limit your ambitions a little and look at more affordable cars but there is a loan out there for everyone!
Car loan affordability
Every lender calculates affordability in their own way but the usual way is to assess how much you earn before taxes and assessing how many outgoings you have. If the amount left after deductions is enough to comfortably afford a loan, you will likely qualify for one. If the amount you have left is negligible, you likely won’t.
There is no definitive answer to whether you would be able to afford a loan as we work with all kinds of lenders who view affordability slightly differently. Ever lender we work with has a different way of calculating it too.
Many dealerships use the 20/4/10 rule for checking affordability. This assumes you pay 20% of the car’s value on a down payment, have a loan over 4 years taking around 10% of your monthly income. As soon as that 10% starts climbing, lenders begin looking very carefully at your affordability. Get anywhere near 20% a month of your income and you may have trouble finding a lender.
There are always options though and we can discuss them with you at the time. They depend entirely on your circumstances and can include a longer loan term or a co-signer. Other options may be viable too.
As a general rule, if you earn over $1,500 a month, you should qualify for most car loans. If you earn less than that, you may have trouble.
It may be better to lease a car rather than buy one. While it may exceed that 10% of your income rule, leases are viewed differently and some companies will agree leases where they may not agree a loan. Again, it is difficult to say for sure without assessing your particular situation.
If you’re looking for a great value car loan or need help accessing finance, visit your local Car Nation Canada dealership. Our experts are on hand to help you through the process.
For more information please visit https://www.dixieautoloans.com/