About borrowing capacity
When granting a loan, the banks analyze the personal situation of the debtor and take into account several “eligibility” criteria: borrowing and repayment capacity, age and health, charges, its resources, and its remaining living, etc. Each credit institution follows its own rules for the institution’s policy and may differ from one bank to another.
Consequently, there is no reason to be discouraged if your funding application is refused here, it can be accepted elsewhere. The method used by most calculators: the total of charges and credits drawn is to be divided by the total of income, net salary, profits, pensions, rents, aids, and allowances.
The other determining factors in the study of a financing file are represented by the solvency and the capacity of borrowing, the professional stability, the personal contribution, the seniority, the remainder to live, the capacity of repayment.
Why calculate the debt ratio?
Applying to low incomes or high incomes, the debt ratio is a good indicator because some households make large expenditures. Most households and individuals using personal loans online accumulate loans, auto, real estate, consumer, revolving credit, etc. However, it is important not to lose sight of the fact that a loan is repaid, on pain of being in a situation of over-indebtedness.
The amount of monthly payments should not exceed a quarter, or 33%, of the lender’s monthly income. The most common calculation method for obtaining debt capacity: the amount of monthly payments to divide by the amount of income and multiply by 100. If we are far below the 33% mark, so much the better because the chances of getting a favorable response to his credit request are multiplied.
After calculating the debt ratio, it is advisable to simulate the repayment capacity. The calculated loan should not exceed 20% of annual income, without taking into account taxes.
The general method of calculation for the available repayment capacity takes into account the net income to be multiplied by 33% – the current borrowing charge.
Again, some financial institutions have their own method of calculation. The simulation of the repayment capacity is inherent in any request for credit. But of course, the repayment capacity is to be calculated only for a new loan.
Half-evils, half-measures: the solutions
How else to act when the borrowing capacity or the debt ratio obtained exceeds normality? Nothing exists without solutions, as a saying goes. Microcredit is specially designed for those who have little need for money.
This may also be the time to negotiate with your banker or to improve your financial situation. Getting a loan smoothing involves deferred or decreased “smoothed” repayment of one loan after another.
It allows debtors to take a break or better manage their financing plans. Credit consolidation lowers fees and monthly payments. Several credit buyout calculators are available online to find out if it’s really worth it for your remaining credits.
If your file has never been refused, it is possible to try to file a request 6 months after… time to clean up your liabilities and restore your credibility.