Loan affordability is how comfortably a borrower can pay back their debts, without negatively affecting their financial health. In other words, when borrowing money, can you manage these loan repayments alongside your other regular expenses?

These regular expenses may include existing debts, living costs, regular payments, and more. When combined with your loan repayment they help to determine how much you can afford to repay each month. For example, if your salary is £2,000 a month but you already have £500 in loan or credit payments, and £1,200 in bills and living costs we’ll factor that in before approving additional borrowing.

By focusing on these key factors, you’re protected from loans you can’t afford. If you’re repaying manageable amounts, it’s less likely to financially strain you and your bank balance.

Lenders use their own formulas for their loan affordability calculators. But the goal is the same - assess a borrower’s ability to pay back what they owe.

The key criteria are:

• Income

  How much your salary is, as well as other potential income you might have, from investments, for example.

• Expenses

  Then your outgoings are taken away from the income. These can be such things as food shopping bills, energy bills, or other loans.

• Credit score

  This is an indicator of your past borrowing behaviour; the higher your score, the more trustworthy you appear. Check your credit score.

• Debt-to-income ratio

  This is your total monthly debt payments compared to your gross monthly income and is calculated by dividing your total monthly debt payments by your gross income. A low DTI means there’s more room to take on additional debt. According to the FCA, borrowers should have a debt-to-income ratio of 4.5 max for mortgages.

Loan affordability calculators look at all the factors involved as part of their calculations. The best thing is, you don’t have to work it all out yourself. It’s done automatically, and presents you with the information in a way that’s easy to understand.

Looking to borrow? Then why not try it for yourself and see how much you might be able to get. It’s a good way to get an idea of what you’re likely to expect.

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As well as income, expenses, credit score and debt-to-income ratio, there are some other things to consider too. What else affects loan approval?

Some loans require assets as security. For example, this could be property you own, such as a residential home. It can even be such things as a vehicle, like a car.

This is a person, usually a close family relative, or friend who agrees to take financial responsibility if you can’t pay it back yourself. They act as a ‘back-up’ option in case you struggle with repayments.

This can be such things as existing loans or maintenance payments. The amount you have to pay every month could affect your loan borrowing. However, each lender assesses this on their own criteria.

If you’ve been in and out of work or are working on temporary contracts, or part time, as opposed to full-time employment, it could affect your chances. These, and frequent job changes or recent unemployment can impact approval. It’s important to note that they don’t rule you out, but aren’t as ‘solid’ as full-time, regular employment.

For example, if you’re borrowing for a smaller purchase, like a minor kitchen makeover, it might be less risky than buying an entire block of flats for property development.

If people are young, they may not have built up enough credit history. If they are too old, they may not have enough time to pay it all off. Some lenders could factor in time you have left working before retirement.

Your loan eligibility won’t change overnight but there are certainly some things you can do to improve how much you can borrow. These methods all rely on a consistent effort to improve your finances.

Your credit score has a significant impact on your loan approval and affordability. Generally speaking, the bigger, the better as high credit scores can unlock larger loan amounts and better interest rates. Start by looking at your current score, and identifying any errors or inaccuracies on your account. It’s important you pay your bills on time as your payment history can affect your future borrowing. Keeping older accounts open can show you have a longstanding credit history.

A low DTI equals more scope for new credit. There are two ways to improve it - increasing your income (by taking on an extra job, for example), and reducing your debts. You can reduce your debts by paying them off quicker, or for example, remortgage to a lower interest rate if you have a mortgage. Remember, a healthy DTI translates to a better borrower prospect for lenders.

Most lenders will ask to see your bank account, especially for a mortgage, to see if you have high outgoings. Some practical things you can do are reducing unnecessary expenses or changing your spending habits.

For example, if you’re the member of an expensive gym, change it to a cheaper one or opt for another form of free exercise, such as walking or running. If you shop at an expensive supermarket, switch for a cheaper one instead and switch from name brands to own brand labels.

Instead of eating at restaurants and ordering takeout, try out some new and exciting budget-friendly recipes at home.

Simply enter how much you want to borrow into the loan affordability calculator, with how long you’d like to pay it back and we’ll provide an estimated breakdown of the interest rates, monthly repayments, and the total repayment you’re likely to expect from lenders.

At Norton Finance, we can help broker the best deal for you with our personalised approach.

How much can I borrow? Find out with our personalised service.