When liquidity is needed, the doubt may appear as to whether there is a debt limit on payroll or income received to apply for a loan. This doubt is more than reasonable, since in the end the income received determines the viability of the operation.
On the debt limit in accessing the loan
The maximum value of the loan that a person, family or organization can request is known as the debt capacity . It is important to know this value, as it will determine the viability of the loan operations.
When a borrower exceeds his own loan capacity, he puts his economy at risk. Since you may be unable to repay your loans. Most financial experts place this limit at around 35% of the borrower's recurring income. Of course, this value depends on factors such as:
- The amount of the loans requested . The higher your interest, commissions and associated expenses, the narrower the debt capacity will be.
- The possibility of receiving extraordinary income . For example, an employed person can predict with some precision how much his payroll will amount (unless he charges commissions or other extras). However, if a self-employed person (self-employed) keeps careful accounting, it is easy for them to raise their debt threshold thanks to additional income.
- The term of maturity of the liabilities . If the borrower has maturing loans, he can also afford to raise his borrowing threshold. As you pay off some loans, it will be easier to pay the rest.
How to calculate debt capacity
Ultimately, the percentage of income that can be used to maintain loans depends on many circumstances . However, a relatively accurate form of calculation is:
- Take the gross value of recurring income (rentals, investments, payroll ...).
- The value of all recurring expenses (supplies, services, rentals ...) is subtracted.
- A percentage between 30% is applied to the result (more conservative cases or in which the possibility of reducing income or increasing expenses is foreseen). And 45% (cases in which a loan will be repaid in a short period of time, or when it is expected that income can be increased or expenses reduced).
Does this mean that you cannot borrow beyond the debt threshold?
Definitely not. Each lender decides the conditions under which they lend their money . Therefore, despite exceeding the indicated threshold, it is possible to obtain loans.
Of course, when a lender is going to put their capital at risk, the most frequent thing is that they first carry out an economic feasibility study. If the borrower is close to their borrowing limit , they will likely be denied the loan. In these cases, you will only have to look for alternative lenders. In Ideal Loans you can make simultaneous requests, so you will have more options for a yes.