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.