Borrowing capacity simulation
When you want to apply for credit, it is essential to be aware of your borrowing capacity because it is one of the criteria that will determine the decision of a lender to grant you a bank loan or not.
What is borrowing capacity?
The borrowing capacity determines the possibility of a person to apply for a loan according to his income as well as his monthly expenses. Generally, lenders consider that the monthly loan payments cannot exceed one third of a household's income. Beyond that, obtaining a loan may become very difficult because if the monthly charges are already too high, the repayment of a loan could lead to over-indebtedness. The borrowing capacity can make it possible to determine the maximum amount of monthly payments that an individual can afford to pay, the amount of the loan as well as the duration of the loan that it will be possible for him to request.
The calculation of the borrowing capacity is the basis of any granting of credit. It allows to know the capacity of a person to repay his monthly payments while avoiding a situation of over-indebtedness. This makes it possible to determine the total sum that it will be possible for him to borrow.
The debt ratio
The debt ratio corresponds to the share of a household's income that is devoted to loan repayments, whether it is a consumer loan or mortgage loans. The debt ratio not to be exceeded, defined and followed by most lenders is 33%. It is not a regulatory rate but it is in common use. Indeed, a person will have great difficulty in accessing credit if his debt ratio exceeds this threshold because lenders consider that this would present an excessive risk of non-repayment. However, the study of a borrower's file is not done only on the basis of the debt ratio but also on his personal profile as well as his remainder to live. It can be noted that access to credit could be facilitated for certain people with a debt ratio of more than 33%, if they have comfortable incomes and have a high level of income. Conversely, less regular or more modest income could lead to refusal to grant a loan, even if the debt ratio is less than 33%.
The rest to live
The remainder to live is the main indicator of the standard of living of a household and thus makes it possible to assess its borrowing capacity. It corresponds to what a household has to live on each month, after having paid all of its fixed charges. The calculation of the remainder to be lived resides in a simple operation where it suffices to subtract the fixed charges from the income of a household (on a monthly basis). The charges will include all regular and incompressible expenses. Income, on the other hand, will refer to all cash flow into the family wallet.
The remainder to live is used to estimate the amount of money that can be spent to repay a loan and thus, the additional debt for which a household can commit. There is no benchmark left to live, everything will depend on the level of income. However, the lower the income of a household, the more essential it becomes to maintain a significant amount of left over to live.
How to carry out a borrowing capacity simulation?
Many sites offer simulation tools to estimate your borrowing capacity. To have recourse to it and to estimate at best the amount that will be possible for you to borrow, it is essential first of all, to take stock of your situation. To begin with, note that in order to be able to access credit, whatever it is, it is always more advantageous to be in a stable financial situation. For example, if you have been employed on a permanent contract and have been working for several years within the same company, you will be more likely to obtain a favorable response for your loan application than if you work on a fixed-term contract or on a temporary basis for example . The same is true if your banking situation is stable and you have never had any problems with your bank (banking prohibition, overdrafts, etc.).
Before carrying out a simulation of your borrowing capacity, you will also need to take stock of your resources and gather all the documents necessary to do so. The resources of your household may include wages, rental income, commercial and industrial but also non-commercial profits, pensions received, various allowances and other income.
Then, you will also have to add up the various monthly charges that you must pay such as the rent paid, the housing charges, the pensions paid, the credits that you already have in progress as well as any other recurring charges.
With all this data, it will not only be possible for you to obtain your monthly borrowing capacity but also your debt ratio as well as your remainder to live. By reading this information, it will be easier for you to better define your project and thus, know the amount that you will be able to borrow.