How Much Can I Borrow?
Determining how much you may be able to borrow depends on your own individual circumstances and the different borrowing criteria for different lenders however the main factors that lenders consider when determining your borrowing capacity are:
- The amount of income you earn from wages, investments, government benefits
- Your employment history
- Your deposit amount
- Any other ongoing credit commitments such as credit cards, personal loans
- Your credit history
- Your living costs including the costs of any dependants you are responsible for
- Term of your loan
- Your interest rate
In Australia all lenders are subject to meeting responsible lending requirements under the National Consumer Credit Protection Act 2009 (NCCP Act). These requirements are designed to ensure that lenders only provide credit to consumers when it is suitable and affordable for them, preventing predatory lending practices and protecting consumers from overburdening debt.
Here are some key aspects of responsible lending requirements in Australia which could impact your borrowing capacity.
Assessment of Suitability: Lenders are required to assess whether a credit contract (loan) is suitable for a consumer's needs and financial circumstances. This involves collecting detailed information about the consumer's income, expenses, and other financial commitments to determine their ability to repay the loan without experiencing substantial hardship.
Verification of Information: Lenders must take reasonable steps to verify the information provided by the consumer during the application process. This helps ensure that the information is accurate and that the consumer's financial situation is properly evaluated.
Capacity to Repay: Lenders must consider the consumer's capacity to repay the loan without substantial hardship. This involves assessing the consumer's current financial situation, including their income, expenses, and existing debts.
Prohibited Loans: Lenders are prohibited from providing "unsuitable" loans to consumers. A loan is considered unsuitable if the consumer cannot afford the repayments, or if the loan doesn't meet the consumer's requirements and objectives.
Alternative Solutions: Lenders are required to consider whether there are alternative credit products or solutions that might be more suitable for the consumer's needs.
Prohibition on Omission and Misrepresentation: Lenders are prohibited from engaging in misleading or deceptive conduct, as well as omitting material information during the credit assessment process.
Reasonable Inquiries: Lenders are expected to make reasonable inquiries to understand the consumer's financial situation and needs, taking into account the type and amount of credit being applied for.
Written Assessment: Lenders must provide consumers with a written assessment that outlines how the loan meets their needs and objectives, as well as how the lender has determined that the loan is suitable for them.
Continuous Assessment: Responsible lending is an ongoing process. Lenders are encouraged to continuously monitor the consumer's financial situation to ensure that the loan remains suitable throughout its term.
Penalties for Non-Compliance: Lenders who fail to meet their responsible lending obligations can face penalties, including fines and legal actions.
