How much loan?
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How much loan can I get with my income?

In life but also when you are applying for a loan, it matters more if you can adjust your expenses to your income than if you get a fat paycheck. Income is certainly a significant factor when applying for a loan, but the applicant’s expenses, as well as any current debts they may have, also play an important part in the process.

The financial institution or bank that is considering granting you a loan will want to make sure that you can afford to repay your loan. In order to successfully repay your loan, you must naturally have sufficient income. However, income alone is not considered a sufficient guarantee of timely repayment in accordance with credit terms. 

For this reason, banks tend to give more weight to the applicant’s available funds, i.e. the ratio between their income and expenditure. Available funds indicate how much money the applicant will have after all mandatory expenses have been accounted for. The amount of money available should cover not only the household’s current expenses, but also the instalments of the loan that the person has applied for, as well as any interest expenses. In other words, if the household’s expenses exceed the available income, it will be almost impossible to get a positive loan decision, no matter how considerable the income would be. 

Even though a negative loan decision may cause frustration in the moment, it is also in the applicant’s best interest that they will not be granted a loan that they would most likely not be able to repay under their current circumstances.

When applying loan, the available funds play an important role

The ratio between the loan amount and the applicant’s income, i.e. the available funds, is more important than the income alone. Even though available funds are a prerequisite for a positive loan decision, most credit providers also have some type of minimum income requirement in place. These requirements can vary significantly between different banks. 

For example, a person with an income of 2,000 euros per month may receive a negative loan decision due to their low income even if their available funds are sufficient. The minimum income requirement depends on the bank’s lending policy, i.e. what kind of customers the bank wishes to grant credit or loans to. 

On the other hand, the minimum income requirement also depends on several other factors, such as current legislation. A good example of this is the current interest rate cap, which has made it much more difficult to obtain a loan with an income of less than 2,000 euros per month.

Regardless of the bank’s minimum income requirements, the applicant have sufficient means of payment in order to obtain a positive loan decision. This rule applies to all applicants regardless of their income. 

The calculation of the available funds takes into account regular income and regular expenses, on the basis of which banks assess the loan applicant's solvency.

Any regular monthly income, such as a basic salary or pension, is usually taken into account as income. Any bonuses or commissions received on top of the basic salary are generally not included in the calculation of available funds, since they are more uncertain in nature than the basic salary itself. The same applies to other forms of irregular income, such as income from irregular or on-demand work. 

Similarly, banks generally do not consider government subsidies or benefits as income when calculating available funds. They are, however, usually happy to provide loans or credit to pensioners, since pension is generally seen as a relatively secure and stable source of income. 

In the calculation of available funds, all regular expenses, such as rent or maintenance charge, insurance premiums, travel expenses, daycare fees, cost of living for minor children, and any debt management fees, are taken into account as expenses.

Example of the calculation of available funds 
Monthly income  
Net salary€ 2 300
Monthly expenses 
Maintenance charge€ 250
Insurance premiums€ 50
Travel expenses, e.g. car or public transport€ 300
Cost of living, e.g. food and clothing€ 550
Cost of living for a minor child€ 400
Loan repayment instalments€ 200
Available funds€ 550

When calculating your available funds and the appropriate monthly instalment for a loan, always remember to include the monthly instalments of the applied loan in your calculation. The difference between income and expenses, i.e. available funds, should cover the new loans’ monthly instalments with interest, as well as any fees or other payments associated with the loan.

Combining loans and credits may increase available funds

It is sensible to regularly monitor your financial expenses and to aim to increase your available funds. Consumers should generally record all expenses and avoid accruing any additional costs even if their available funds would be at a good level. 

One way to increase your available funds is to consolidate your debt. Consolidating your debt means paying off all your current debt, such as credit card debt or consumer credit debt, at once with another loan that offers you better terms. This may help you save money on loan costs, which, in turn, will increase your available funds, since the decreased costs will leave you with more disposable income.  

Other ways to increase your available funds include increasing your income or reducing your other monthly expenses. Increasing your income may, however, be significantly more difficult than weeding out extra costs. For this reason, it is usually sensible to start increasing your available funds by aiming to decrease costs. 

Over time, you may have accrued different subscriptions that are no longer necessary. Going through any current agreements or subscriptions is an easy way to get started with increasing your available funds. Terminate any unnecessary contracts or subscriptions and shop around to see which service provider can offer you the best price for the rest. Even if you only save a few euros per each subscription, it may increase your available funds significantly.  

In addition to loans, it is fairly easy to find better offers on insurance contracts, telephone subscriptions and electricity contracts, for example. 

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