Borrowing Capacity – How Much Can You Borrow?

If you are considering taking a loan of any description, you may want to learn your borrowing capacity. Your borrowing capacity is what any lender will be assessing when you apply for a loan. It doesn’t matter whether you are seeking no credit check loans, a mortgage loan, or loans for people on Centrelink. Your lender will still assess for this.

Even if you aren’t looking for a loan, it can be helpful to have an understanding of borrowing capacity. What is it? How does it affect you? How do you improve it? These are all questions that Monzi will be addressing throughout the contents of this article. So next time you go for cash loans, you will have adequate knowledge at your fingertips.

Please note that specific ideas and products presented in this article may not be on offer by Monzi or the lenders we work with. This article presents only general information. Consider seeking professional financial, taxation, legal or other advice to check how the information and ideas presented on this website relate to your unique circumstances.

Define borrowing capacity

Your borrowing capacity is the maximum sum that you can borrow from a lender. No two people are likely to have the same borrowing capacity, as capacity calculates on personal information. Some of which includes your income and expenses, your job, and in some cases, your credit score.

Only a lender will be able to provide you with a precise valuation of your borrowing capacity. Even then, opinions may vary across lenders and loan types. However, if you want to know for yourself what you may be able to borrow, there are some ways to calculate this. Doing so can help you work out whether you may be eligible to pursue a loan or whether you will need to continue saving for a while longer. If you want a well-planned future, understanding your borrowing capacity may be useful.

What is my borrowing capacity?

Your borrowing capacity calculates on a vast amount of information. Depending on the loan type and the lender, the amount of data you need to provide may vary. For example, for a home loan, you may have to produce a lot more documentation than you would if you were applying for a personal loan. But, how do you work out your borrowing capacity without speaking to a lender?

There is a general borrowing capacity formula. It looks like this:

Gross monthly income – tax – existing commitments – new commitments – living expenses – buffer = Monthly surplus

Say you start with a $7,000 per month income. Once you subtract the above things, you may only end up with a surplus of $1,000. This is a very general overview, however. Multiple pieces of information combine for this calculation. For the most accurate outcome, you want to use near-exact figures.

Of the above, your existing commitments are any pre-existing loans or credit cards that you may have. Your new commitments may include the details of the loan you are about to undertake. The buffer isn’t always in the formula. Instead, it is a made-up expense some lenders may include to give you some wiggle room within your capacity.

If you aren’t so keen on calculating this information by hand, you may be able to find a borrowing power calculator to help you.

How to increase borrowing capacity?

It may be hard to install immediate changes when it comes to your borrowing capacity. However, there are some things you can do to increase it, rather than simply saving more money, if you are looking to borrow a more significant amount. Here are some options to investigate if you are looking to borrow more in the future:

  • Income and expenses: Do you have any debts you could contribute more to? Shuffling your spending around or minimising your credit card use may look nice for your application.
  • Your credit score: Depending on who you apply with and how much for, your credit score might matter. If it does, you will want to ensure all the information displaying on your credit report is correct and up to date.
  • Your assets: If you can save well, it might impress your lender. Not only will your savings be impressive, but so will any stocks or other investments you might have.
  • Ensure you aren’t applying beyond your means: Not only does applying beyond your means potentially hurt your credit, but it’s also a waste of time. Applying intelligently for credit is a much better move.
  • Living expenses: Are you living too lavishly? You may be able to make several small everyday swaps to show your lender that your standard of living isn’t beyond your means.

These are just a few options, but they may give you some ideas when it comes to increasing your borrowing capacity.

What is my home loan borrowing capacity?

For a home loan, having a large borrowing capacity is going to be in your best interest. This doesn’t mean you need to be rich with an abundance of assets. Instead, it means you need to ensure you are managing what you have at your disposal well. For a more accurate home loan borrowing capacity estimation, it may be easier to use a home loan borrowing power calculator.

This way, you will only have to input the required information rather than doing the calculation yourself. Note that any calculator you use may still not generate the same answer that a lender might give you. Use them as a guide, not as concrete evidence.

Personal loan borrowing capacity

Personal loan borrowing capacity may be slightly different. This is as personal loans are generally far smaller than home loans. Thereby your lender will require a lot less information. If you are only after small loans, for example, a credit check may not apply. Therefore your credit score isn’t a factor in your capacity calculation. The most constant factors when calculating your borrowing capacity for most personal loans are your income and expenses. Outside of this, lenders may also want to see whether you have job security and whether you are providing collateral.

Monzi lenders may be able to offer you no credit check loans in some instances. Although, as every lender operates differently, we cannot speak on behalf of them all. However, if you pair with a lender who requires a credit check, it’s not the end of the world. When a Monzi lender decides whether you have adequate borrowing capacity, they may base it on your complete circumstances, not just your credit score.

Using equity for your loans

If you already own a home and want to take a second home loan, your current home’s equity can contribute to your borrowing capacity. As you repay a mortgage loan, the home you live in generates your equity. Equity is essentially the ‘portion’ of the house that you own. This means that if you buy a $400,000 home and pay off a quarter of it, you’ll have $100,000 in equity. You can then put this equity towards your next home.

There are dangers to this as, if you miss repayments, you endanger both homes. However, if you are looking to boost your borrowing capacity, you can contribute your equity. If you think this is something you might like to do, first speak to your lender and weigh out the pros and cons.

Does being a guarantor affect my borrowing capacity?

If you choose to go guarantor on a family member’s home loan – such as your child’s or parent’s – you will contribute your own home’s equity to their borrowing capacity. This is a lovely thing to do if you trust your family member. However, it may affect your borrowing capacity if you are also looking to take a second home loan.

You will be affected even more so if you want to use your own home’s equity on this second loan. This does not mean that you won’t be able to take a second loan; it just might not be as large of a loan as you originally anticipated. Think long and hard before choosing to enter a guarantor loan. These types of loans require a large amount of trust and commitment.

Does age restrict borrowing capacity?

Yes, in some circumstances, your age may impact how much you can borrow, or even whether you can borrow at all. Generally, once you surpass 60, it may become more difficult to receive approval for certain loans. This is particularly true for home loans as lenders then need to factor in whether or not you can repay the loan if you were to pass away. In some circumstances, you may need to provide an exit strategy. This means proving that you could sell off your assets to repay the outstanding loan.

With smaller loans like personal loans, there is still approval potential. However, this may depend on what your primary source of income is. If you are on a pension, some lenders may not consider this viable for loan repayments. Keep in mind that some lenders, such as those in the Monzi network, may be able to offer you pension loans. Essentially, however, when applying for loans as a senior, you may just need to be slightly more strategic with your approach.

Does HECS debt affect borrowing capacity?

If you did any tertiary study, you might have a reasonable amount of HECS debt. This can lower your borrowing capacity. HECS decreases your income once you earn enough to begin repaying it. However, as HECS repayments are taken automatically (meaning you can’t default), and there is no interest, it is less risky than other debts.

Therefore, while student debt in Australia can decrease your future borrowing power, it may not be as significant in comparison to any other debts you may or could have.

Learning borrowing capacity

Does LMI affect borrowing capacity?

Lenders mortgage insurance (LMI) is typically an additional one-off fee that your lender charges to protect them if you cannot repay your loan. The more risk you supply the lender, the higher your LMI may be. LMI generally isn’t included in your borrowing capacity. The stronger your borrowing power is, the less likely you are to need to pay LMI. However, you should be aware that the size of your deposit will matter.

Do investment properties reduce borrowing capacity?

Generally, no, purchasing an investment property, in some cases, may even increase the limit on what you can borrow. This may not be consistently the case; depending on how many properties you own and whether they are likely to generate reasonable revenue, there is potential for a decrease in borrowing capacity. If you intend for your first home loan to be an investment property, this may be a good way of building equity for when you eventually want a home to live in.

However, your income and savings have a lot more influence over your borrowing capacity than an investment property will. Meaning that if you are looking to increase your borrowing power but aren’t sure where to start, saving a larger deposit may be more beneficial than purchasing an investment loan. If you would like to read more about investing, the government’s MoneySmart site has an excellent page on borrowing to invest. This may be a good start for further research.

Borrowing capacity for businesses

Business loans Australia are available for many Aussie businesses; however, what might a business’s borrowing capacity look like? A company’s borrowing power is similar to that of an individual’s borrowing power. However, in some circumstances, it may be referred to as debt capacity.

Depending on the experience and profitability of your business, it can be difficult in some instances to get approved for business loans. This can be particularly true if you are a new start-up and cannot demonstrate enough cash flow for financial institutions to lend you their money. Banks are likely to have a strict vetting process, during which the bank may give your business rankings for its performances in different areas. You may use a business loan calculator to get a better idea of what your company can borrow.

However, if you aren’t looking for extensive money, Monzi could be an excellent no-fuss alternative. Whether you need to cover your employee’s paychecks during a tough week or upgrade your equipment, you may be able to take a personal loan for business reasons. If this sounds like something that may help you, why not place an application through the Monzi lender-finder, and we’ll see if our lenders can help.

Borrowing power calculator

Want to know your borrowing capacity but don’t want to calculate it yourself? There’s an easy fix for this problem. Borrowing power calculators are available to help you out. You might find several home loan borrowing power calculators available for free online.

To use one of these calculators, you will need to supply some information about the loan you are looking to take. This means inputting an interest rate and a loan period. Then you will need to tell the borrowing power calculator about your income. This includes whether or not you seek a joint application, your net income, and any dependents. Finally, you will need to detail your other expenses, such as your loan repayments and any credit card limits.

From there, the borrowing power calculator will give you some rough estimations. These may include what you can borrow up to and what your monthly repayments might look like. You may be able to find these types of calculators for most types of loans. Whether it be a personal loan repayment calculator or a business loan calculator. All you will need to do to find one of these free tools is to search up ‘how much can I borrow calculator’. Then, pick the calculator you feel will be most helpful.

How accurate are borrowing capacity calculators?

What you can borrow and what a borrowing power calculator says you can borrow may have some inconsistencies. These tools can be extremely useful in giving you an idea of where you are. However, you shouldn’t interpret them as concrete. Most of these calculators provided by financial institutions or mortgage brokers are likely to have disclaimers on their calculators. They may also tell you how they reach their output. Generally, the borrowing capacity it generates will be the maximum amount and may calculate on a series of default values.

If you are looking to take a loan of any sort, note that the calculator’s values are subject to change. They are, however, a good starting point for your research. When you are ready to begin the loan process, speak with your lender about what you can borrow.

How many times your salary can you borrow?

It’s hard to give an exact value in response to this question. This is as the answer is subject to change depending on the individual, income, expenses, and lifestyle. However, using a borrowing power calculator to estimate your capacity is a great way to form a base idea when planning your financial future.

It may be much easier for your lender to calculate your borrowing capacity when it comes to personal loans. This is as for the lenders in the Monzi network, the criteria are not strenuous. In some cases, your lender may even be able to skip the credit assessment if you are looking to apply for bad credit loans. The majority of the lenders Monzi works with are private lenders offering private loans. Therefore, if you have struggled to operate through banks, they may be able to give you a second chance.

Home loan calculator

If it is your first home loan, utilising a home loan calculator could help you understand your capacity. This then helps you identify whether or not it needs improving. Want to know what your loan repayments and your principal and interest might be? These calculators can be your friends. Your principal and interest is the amount you have to repay and the rate you have to pay on top of this. These calculators may also allow you to play around with whether you would want a fixed or variable rate. Understanding how these details affect you will enable you to make more confident decisions before starting the loan process.

If you are a well-versed buyer in the home loan industry, you may be more interested in the uses of a refinance calculator. When it comes to refinancing, you must be taking a better deal than the one you currently have. Regardless of your position in life, don’t forget the additional fees and charges you are likely to encounter when seeking a home loan.

How do credit scores affect borrowing capacity?

Depending on the type of loan you seek, your credit score may influence your borrowing power. If you are looking to take a home loan, then your credit report is likely to be one of the first things your lender will examine. If it is less than good, you are unlikely to see your loan process progress. On the other hand, if you have an excellent credit score, your capacity may increase, permitting you to take a larger loan.

With the lenders in the Monzi network, a negative credit score may not end your application on the spot. This is as most Monzi lenders have more lenient criteria than a bank and can look at your situation as one big picture. Meaning that they will either skip the credit check altogether or glance over your report and contrast it. They may do so with your cash flow, job, and any existing debts. Therefore if you’re looking for same day loans, Monzi lenders may allow you the flexibility to get the small loans you need.

Is it possible to conduct credit repair?

If you are looking to increase your borrowing capacity, you may want to fix your credit as best you can. Credit repair is a possibility; however, the bulk of the entries on your credit report are time-constrained. This means the list of options for credit repair Australia can be pretty slim. Time is your ally, and installing productive money management skills in the meantime might be in your favour.

However, if there are any mistakes on your credit report, you can have these corrected. This may, in turn, improve your credit score. However, navigating this on your own can be strenuous. If you have some room in your budget, you may employ a company to help you with this. These companies may not be able to do anything for your credit report, as it cannot be wiped clean. However, they may be able to help you create budgets and install intelligent behaviours in the meantime.

How can a deposit calculator help?

A home loan deposit calculator can be helpful if you have identified your borrowing capacity and now want to know what your deposit will look like. Maybe it’s an investment property and you want to know how your equity can influence your capacity. Or perhaps it’s a first home and you are unsure if you can avoid lenders mortgage insurance.

Understanding the size of the deposit you are looking to put down can be pretty helpful. This is also an excellent time to factor in any other fees and charges that will come with your loan. Doing so ensures you don’t encounter any nasty surprises. If you are looking for services free of additional costs, the Monzi lender-finder may be for you. It might be able to help you locate a lender for your personal loan without costing you a cent. Not only this, but if you apply within business hours, this may take place in as little as 60 minutes. Thereby wholly removing the hassle of finding a private lender on your own.

How do you apply with Monzi?

You might be confident in your borrowing capacity and that’s great. But if you aren’t, the lenders in the Monzi network will try and give you a fair evaluation. So, if you need a loan of $300 to $10,000, all you have to do is begin your application. To start you can click the purple ‘apply now’ button. Or, you can scroll up to the loan slider at the top of the page.

Complete your application, then we will do our best to match you with a lender in as little as 60 minutes. Please note that we can only match you within the hour if you apply during office hours. If we are successful with the match, your lender will be in contact with you.

If you have any queries before you begin, don’t hesitate to contact us. You can reach our friendly team at hello@monzi.com.au. We look forward to hearing from you!

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Factor In

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You won't use a penny to apply for our lender-finding service, but here's some costs you could expect from a lender

Loan amount

$300 - $2,000

Terms

12 months (minimum)

12 months (maximum)

Costs

20% upfront establishment fee

+ 4% monthly fee

Example

Loan Amount of $1,000 over 6 months repayable weekly (25 weekly repayments). $1,000 (Principal Amount) + $200 (20% Establishment Fee) + $240 (fees based on 4% per month over 25 weeks) = $1,440 total repayable in 25 weekly installments of $57.60.

Under the current legislation, most small personal loan providers don’t charge an annual interest rate (you’ll know this as an APR) %. The maximum you will be charged is a flat 20% Establishment Fee and a flat 4% Monthly Fee. The maximum comparison rate on loans between $300 and $2000 is 199.43%. The minimum and maximum loan term is 12 months. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

Loan amount

$2,001 - $4,600

Terms

13 months (minimum)

24 months (maximum)

Costs

48% Annual Percentage Rate (APR)

67.41% Comparison Rate p.a.

Example

Loan Amount of $3,000 over 18 months repayable weekly (78 weekly repayments). $3,000 (Principal Amount) + $400 (Establishment Fee) + $1,379.06 (reducing interest) = $4,779.06 total repayable over 18 months with weekly installments of $61.27.

The Annual Percentage Rate (APR) for Secured Medium Loans is 48%. The Typical Comparison Rate is 67.41% p.a. The minimum loan term is 13 months and the maximum loan term is 24 months. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate with the lender that finances your loan. Click here to see a worked example.

Loan amount

$5,000 - $10,000

Terms

13 months (minimum)

24 months (maximum)

Costs

21.24% Annual Percentage Rate (APR)

48% Comparison Rate p.a.

Example

Loan Amount of $10,000 over 24 months repayable weekly (104 weekly repayments). $10,000 (Principal Amount) + $5,577.12 (Interest) = $15,577.12 total repayable over 24 months with weekly installments of $149.78.

The Annual Percentage Rate (APR) for Secured Large Amount Loans is 48%. Maximum Comparison Rate is 48% p.a. The minimum loan term is 13 months and the maximum loan term is 24 months. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate with the lender that finances your loan. Click here to see a worked example.