In recent years, bank lending has experienced a new turning point with a very significant increase in applications. Indeed, whether it is a question of financing a project or of regularizing its situation, private customers are increasingly resorting to the solution of private credit. From this perspective, a central question remains. How can I calculate the maximum credit amount? There is indeed a method to easily determine the amount a bank will lend and we are zooming in on this point!
Calculation of the maximum amount of credit: the principle of the debt ratio
The debt capacity calculation indicates the maximum rate that a household can use to repay its monthly loans. This rate is equivalent to 1/3 of household income. This limitation tends to maintain an adequate subsistence allowance so that families can continue to meet their daily expenses. As a general rule, the maximum borrowing capacity is therefore equal to 33 % of household income. This means that all loan installments cannot total more than one-third of income. This borrowing capacity threshold of 33 % corresponds to the highest debt ratio for most households. Not exceeding the maximum amount of credit constitutes a reciprocal protection between the lenders and the borrowers.
This principle of the debt ratio applies in different borrowing situations. Moreover, we also find this formula when it comes to a mortgage financing. However, the granting of mortgage financing will also be conditional on other criteria, such as the state of your equity and the estimate of the property you wish to buy.
First step to calculate the maximum amount of a credit
The first step in the calculation will be to know the monthly balance of the household. To do this, we will apply the following formula: total income minus total expenses.
Total Income – Total Expenses
The total income takes into account the salary of the borrowers, any additional income, annuities and any other sources of income that are sustainable. In the total expenses are included all expenses that are the responsibility of the borrower. There will therefore generally be a lump sum for current expenses, rent, health insurance, existing monthly payments, any alimony payable by the borrower and any other expenses that would be sustainable in the household.
To summarize without tearing your hair out, the maximum amount of a credit is therefore calculated beforehand using the following information:
- Total income;
- And the total of all existing charges;
Now that we know how to determine the monthly balance available, we will see the rest of the calculation which will allow you to accurately estimate the maximum amount of the loan that you can borrow.
Second step to know the maximum amount of a credit
To find out how much you can borrow, simply multiply your available balance at the end of the month by doing the following:
As we have seen previously, for each household, the formula is determined based on the difference between income and expenses. For simplicity : Income – Expenses = Amount that can be attributed per month to the repayment of a loan. However, there is still a maximum credit limit that can be granted. To know the latter, simply multiply your monthly balance by 36 (monthly limit x 36). Here is the complete formula to know the maximum amount of a credit:
([Total income – Total expenses]) * 36
Consequently, the maximum amount of credit granted will be the available monthly balance of the household multiplied by 36. Note that this figure of 36 corresponds to the number of months theoretically granted to repay the credit. In fact, the repayment period will often be longer than 36 months since at Lica it is possible to repay your loan over a period of up to 120 months.
Here is a numerical example to better understand how the calculation works:
|List of income||CHF||List of expenses||CHF|
|Main activity income||4'500.-||Monthly plan for a single person||1'200.-|
|Income from secondary activity||300.-||Residential rent||1'800.-|
|Alimony received||500.-||Health insurance premium||450.-|
|Annual monthly bonus||350.-||Existing lease||350.-|
|Total revenue||5'650.-||Total of expenses||4'200.-|
The monthly balance available is: CHF 5,650.- – CHF 4,200.- = CHF 1,450.-. To now know the maximum amount of a loan, simply multiply this result by 32: CHF 1,450.- * 32 = CHF 46,400.-.
In this example, it will therefore be possible for the borrower to request a maximum credit of CHF 46,400.-.
Calculation of the amount of a loan for loans over CHF 80,000.-
For amounts over CHF 80,000.-, banks are no longer required to apply article 28 CCA. The content of this article concerns the maximum amount granted when calculating the budget. Therefore, banks can grant a credit well above the maximum amount linked to the solvency of the borrower.
However, if you apply for a loan that exceeds your financial capacity, the application may be rejected even if you meet all the other conditions! Indeed, despite the non-applicability of article 28 LCC, the banks apply various internal calculations to ensure that the exposure to the risk of insolvency is not too high. This is why it is always preferable to seek the services of a knowledgeable intermediary before submitting a funding request. The latter will know how to prepare your file to maximize your chances of acceptance.
New factors are involved in the calculation of your budget!
Since 2015, the grant conditions have been tightened due to the addition of new parameters in the calculation of the budget. This concerns, for example, childcare costs for people who are responsible for children, various travel expenses, lunches, etc. In addition to the above criteria, since January 2016, a safety margin has also been added to anticipate serious problems that may affect your health, professional and private life. These different factors therefore imply the absolute necessity of getting help from a professional credit broker when applying for credit.
My budget is good but the bank refuses me a loan!
Sometimes, despite a budget surplus, the banks nevertheless refuse to grant you a loan. This situation unfortunately occurs when other criteria are not met. These are usually the following points:
- You have ongoing lawsuits and therefore a high risk of wage garnishment
- Wrong registrations concerning you are visible in the central ZEK file
- Or incorrect information was communicated to the bank during a request
In these three situations, the best thing to do is to stop all credit applications and seek the services of Lica. Our Experts will analyze your situation and they will tell you the best course of action to obtain your financing as quickly as possible.
Our conclusion on the calculation of the maximum amount of a loan
Quickly estimating your borrowing capacity is very practical for planning your future goals. As we have probably demonstrated in this article, the formula is simple but requires a good knowledge of your budget. Added to this are a few small specificities that you need to know to maximize your chances of getting credit on favorable terms.
Regardless of an easy-to-use formula, we always recommend that you use the services of an intermediary recognized for its quality work. So you will put all the chances on your side to carry out your project with the help of financing at the best market conditions.
Now that you know perfectly how to calculate the maximum amount of a loan, take the time to contact our specialists. They will accompany you in a neutral and confidential way in your steps.
Do you have any questions before applying? Our advisors are there to answer your questions 7 days a week directly on WhatsApp. Ask us for more information and we will be happy to answer you!