Assess Your Borrowing Power for A Personal Loan with These Factors    

Assess Your Borrowing Power for A Personal Loan with These Factors    

Getting a personal loan isn’t always a planned decision. Be it for a spontaneous holiday, consolidating previous debt, home renovations, or medical emergencies, plans like the – personal loan will help you manage finances better, improve your livelihood and help make your dreams a reality.

However, getting a personal loan in Australia depends on an important factor: your borrowing power. Though many other factors affect loan approvals, the borrowing power is one of the most significant ones.

Borrowing Power and Personal Loans

Whether you are planning to apply for a personal loan for a home renovation in Melbourne, or a dreamy fairytale beach wedding in Sydney, it is important to figure out your current borrowing power.

In general, borrowing capacity is the sum of money a lender is willing to loan to you. Based on your financial situation, the lender will use the term borrowing power to describe the quantum of the loan you are eligible for.

For instance, if you have a considerably high borrowing capacity, you will be able to borrow and repay even high amounts with relative ease.

However, you cannot increase your borrowing capacity by just depositing a large amount of cash into your account. Apart from the deposit range, numerous other factors are used to assess the borrowing power for plans like the – personal loan.

Some of the common factors include:

  • Living expenses
  • Stable income
  • Stable job
  • Strong assets
  • Low/ no debts
  • Considerably large deposits

On the contrary, if you are in a lot of debt, have a marginally low deposit and credit history or have been managing finances poorly, your borrowing power is likely to be lower, meaning the loan amount you’re eligible for will be lower as well.

Factors That Affect Your Borrowing Power

Income Status

Income plays a significant role when assessing borrowing power. That’s because, usually, when you get in touch with a digital bank or visit a lender for personal loans in Australia, the first thing they will try to gauge is your ability to repay the loans.

In addition to assessing the income status, the lenders might also look into any outstanding debts and pending commitments you have.

By any chance, if your debts and commitments have rendered your borrowing capacity low, there are ways to get loans at personalised rates. For instance, if you opt for – personal loans, you can borrow anywhere from $2000 to $30,000 at customised rates.


Similar to income status, the amount of debt you already have will also bear an equal significance when assessing borrowing power. That is because, if you’re in debt, you may have to split the amount when it comes to repayments, and the chances of it affecting your ability to pay off your instalments punctually are high.

Cost of Living and Lifestyle

Cost of living includes expenses like child care fees, school fees, and more. These expenses will also be considered while assessing your borrowing power because most of these expenses are likely unavoidable and are likely to prioritise repayment of the loans.

Also, the regular repayments that you make should not deprive you of a comfortable standard of living. So, it is important to be honest about your lifestyle and living expenses while determining your borrowing power.

Financial Records

Records like salary slips, tax returns, bank statements and identification documents also play a significant role in assessing your borrowing power for personal loans.

These records are documented proofs for any type of overtime pay or bonuses. They will turn out to be very useful while calculating your borrowing capacity.

Credit History

It is a given that a trustworthy person is the one who adheres to guidelines and meets deadlines. The same applies to calculating your borrowing power and personal loan eligibility. Your credit history acts as an indicative feature signifying your regular repayment behaviour.

Naturally, the credit history is vital to increasing your borrowing power and, consequently, your chance to avail yourself of personal loans.

So, before you log in to a digital bank or visit a lender, it is good to get a look at your credit history to check if it is on track or if there are any red flags.

Deposit Amount

While applying for personal loans, you may have to lay out a certain amount as a deposit. And, this deposit amount will directly affect your borrowing capacity. Put simply, the larger your deposit amount, the greater your borrowing power will be.

The deposit amount also gives the lender a peek into your ability to save money over a period of time, hence reducing the risk that a lender takes in lending money to you. This way, you can get approved for larger loans at lower interest rates.

Existing Loans

Any current loan, be it personal, car or home, can significantly impact how much money you can borrow in the form of personal loans.

This is because loan repayments are likely to eat into your monthly disposable income, meaning, you may not have enough money left over to repay your new personal loan.

To sum up, the more loans you already have, the lower your borrowing power will be.


Income Tax Returns

Similarly, if you have filed your income tax returns for this financial year and are yet to receive a refund from the government, you may stand a better chance if you wait for the same before you apply for a personal loan.

It is because when filing your tax returns, the government takes into account your expected earnings. Once the government issues a refund, this amount will be deducted from your expected earnings.

This means that your chances of securing a personal loan might be affected if you file your income tax returns while trying to borrow money. However, while filing income tax returns can affect borrowing power, an increased credit score may help offset it.

So, if you are planning to get a vehicle, renovate your home, or invest in a property, the very first step you must add to your checklist should be assessing your borrowing power for loans.

Once you get a clear picture of where you stand when it comes to borrowing power, you can confidently go ahead and put in your personal loan application with a reliable, reputable lender.