Requests for bank loans have exploded in recent years. Clients are increasingly seeking to finance their projects or regularize their financial situation by opting for private credit. Faced with this trend, a question often arises: how to calculate the maximum amount of a loan? We offer you a simple method to determine how much a bank can lend you. Let’s discover this process together!
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.
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 minus total expenses
To calculate total income, we add the borrowers' salary, their additional income, annuities, and all other sustainable sources of income. The total expenses include all expenses that are the responsibility of the borrower. We will therefore generally include a fixed amount 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;
We have seen how to calculate your monthly available balance. Now let's take the next step to accurately estimate the maximum amount 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 saw 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 find out the latter, simply multiply your monthly balance by 32 (monthly balance x 32). Here is the complete formula to know the maximum amount of a credit:
(Total income – Total expenses) * 32
Therefore, the maximum amount of credit granted will be the monthly available household balance multiplied by 32.
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.- |
| Tax | 400.- | ||
| 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 apply for credit maximum 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.
Applying for a loan beyond your financial capacity may result in rejection, even if you meet all other requirements. Indeed, although article 28 LCC does not apply, banks use their own calculations to limit the risk of insolvency. 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.
Despite the existence of a simple formula, consulting a quality intermediary is recommended to maximize your chances of obtaining financing at the best market conditions for your project.
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!
