How Much Can I Borrow (Hvor Mye Kan Jeg Låne?) for a Loan?: Borrowing is a universal phenomenon that has become acceptable in certain circumstances. For example, a bank customer who needs more money than they have in their account to solve an issue can borrow some money from the bank. They can either ask for an overdraft or apply for a consumer loan.
Consumer loans come in several types such as personal, medical, student, mortgage, or auto loans. Credit cards are also a form of consumer loan except that the system of administration is different. Click here for more details on credit cards versus personal loans.
Most often, people wonder how much they can borrow and whether they can get the amount they need to meet certain needs. In this article, we will not categorically tell you any particular amount. This is because circumstances differ; however, we will discuss certain factors that can affect the amount a borrower will qualify for.
Factors that Affect How Much Loan a Borrower Can Get
Before applying for a loan, there are a number of things that the applicant must consider. One of the factors which we consider particularly important is the amount that they need and how much they can borrow.
Getting accurate information on the borrowing limit that you have as an applicant can help you know how to tailor your budget. There are, however, projects that are in themselves quite capital intensive and no matter how much one cuts the budget, they still will be in a certain range. Take for example buying or building your first home or buying a car. There is already a limit that the budget cannot go below.
For projects like this, you need vital information on how to get approved for the amount that you need. So, let us look at the factors that will affect your approval and the amount you will get: –
Your credit is the sum total of your creditworthiness. It is rated numerically from three hundred – 850 with the lower numbers depicting low creditworthiness and a high number depicting high creditworthiness.
So, the first thing that most lenders look at in determining whether they will approve a borrower’s application and the amount they will approve is the credit score of the applicant. Certain factors such as the applicant’s use of credit and payment history are used to calculate this score.
This score tells the lender whether the borrower is a high-risk customer or not. It helps the lender know what to expect if it approves the loan. An applicant that misses payment of credit card bills or has past due payments on transactions is most likely to have a low credit score. This type of customer does not stand a good chance of getting approved and if they do, they may not get the amount they desire.
This, therefore, means that you as an applicant must work hard to maintain a high credit score so that whenever the need arises for you to access credit, you will get the amount you desire without much stress.
The credit history of an individual is connected to their credit score and is part of what is analyzed in the process of checking out the credit score. This history shows the financial activities of the prospective borrower.
The lender will be on the lookout for activities that look suspicious and some of these activities include multiple loans that are running at once and numerous inquiries due to indiscriminate application for loans. These activities are red flags to the bank or financial institution to which you are applying.
Every time you apply for a loan, a credit check is requested on your account and this goes on your record. This therefore means that you should not apply indiscriminately for loans and if you need to shop for loan offers, there are ways to go about it so as not to affect your credit history.
Most lenders prefer to give loans to people who are employed and have been in a particular job for a reasonable period of time (most often between 2 to 3 years). This gives the impression that the individual is stable and can stick to a commitment. This also assures the lender that the individual has the capacity to repay due to a steady source of income.
Compare a person who has been in one job for over a year or three 3 years to one who has changed jobs three times in a year. Which of these applicants would you approve of if you were a bank or financial institution?
In checking out the employment history of a prospective borrower, the bank will also look at the annual income or salary. The consistency of the income will determine how much would be approved and not just a sudden or recent change in the income. So, a consistent income is a huge determinant of the amount you can borrow.
Type of Loan and the Term
here are several types of consumer loans and they all come with different terms and conditions. Personal, student, and medical loans are unsecured and have different interest and repayment durations. Mortgages and auto loans on the other hand are secured loans and have longer repayment durations.
While it is advised that borrowers know the exact type of loan that they need, some banks will look at the borrowers’ applications and decide the best type of loan for them. The type of loan also determines the amount that the borrower will be eligible for.
Mortgages and car loans are the two types of loans that have the longest repayment durations and also the largest sum that can be approved (large sums can also be approved for medical and student loans). The repayment duration for mortgages can be between 15 and 30 years while some auto loans can run up to 7 years.
It is advised that you consider the purpose of taking out the credit facility. This will help to inform you of the type of facility you should apply for, which will in turn affect the amount you can expect to get. If you need money to finance tertiary education, it would not be necessary to take out a personal loan.
Based on the fact that different loans have different terms and conditions, you may run into trouble with trying to fund tertiary education with a personal loan. Repayment for student credit facilities does not start until after the student has graduated and started working and earning an income. However, the repayment duration for personal loans is shorter.
You as a borrower need to work with the prospective lender to know the type of loan and the amount you qualify for. This will help you make an informed decision. You can visit: forbrukslån.no/hvor-mye-kan-jeg-låne/ for more information. Remember that the more information you get, the better decisions you can make.
Your Debt-to-Income Ratio (DTI)
This is the sum total of how much you earn, how much you spend on servicing debt, and how much you spend on living expenses. It is calculated by dividing the monthly total debt repayment of the applicant by their monthly gross income. Although all lenders may consider this factor, it is mainly important to mortgage lenders.
These categories of lenders expect your DTI is between 28 – 36%. What this means is that you are not expected to spend more than 36% of your gross monthly income on servicing debts.
So, the lower your DTI, the higher your chances of getting the amount you desire because you are considered a low-risk borrower by the lender.
We have discussed some factors that can affect how much a person can borrow. Bear in mind that the factors discussed are in no way exhaustive. There are still a number of other issues that can affect one’s eligibility for certain amounts and types of loans. You, therefore, need to do your due diligence before going ahead to apply for a specific sum of money from any bank or financial institution.