Every day we get the question; “How much money can I borrow?” For example, customers want to know if they can borrow enough to buy a certain car or to finance the renovation of their home. In this article we will discuss the various components that determine how much money you can borrow.
The Financial Supervision Act states that a loan or loan may not be granted if this is not justified. This means, among other things, that a customer must be able to pay off the loan. Providing a customer with more credit than he or she can borrow is called over-crediting and is prohibited.
The Netherlands Authority for the Financial Markets supervises the financial market for loans. They check whether the credit has been (has been) justified. And therefore whether customers have not been given too much money. The AFM does not provide a ready-made calculation for a maximum loan. They did, however, adhere to the standards for creditworthiness as laid down in the Code of Conduct. This means that a lender who adheres to the Code of Conduct sufficiently demonstrates that he has investigated the creditworthiness of the customer.
Code of Conduct
The Association of Finance Companies in the Netherlands has drawn up a code of conduct. This code of conduct prescribes, among other things, that the basic standard for livelihood must be applied to lending as laid down by the . The basic standard is the amount that everyone needs at least monthly to live on. This basic standard differs per type of household. The distinguishes 4:
- Single with children
- Married / cohabiting
- Married / cohabiting with children
In addition to the basic standard just discussed, fixed costs are also calculated. These fixed costs consist of: alimony, costs for other loans and the actual housing costs. In the case of owner-occupied homes, this means that the gross mortgage costs are reduced by a mortgage interest refund set by the bank. In the case of a rental home, this reduces the rental burden with any rent allowance received. If you live at home, the bank charges 33% of your net income as housing costs.
Finally, the Code of Conduct takes into account an extra piece of income that must be available for subsistence. As income rises, this becomes much larger. The underlying idea is that the higher the income, the higher the cost of living, because of a slightly more expensive lifestyle.
It goes without saying that someone must have sufficient income to be able to pay their fixed costs and the costs of living. The money that may remain can then be spent on the monthly installment for your loan.
By income is meant: the net income per calendar month. The various allowances such as; care allowance, holiday allowance, child allowance, travel allowances, allowance for school costs and tax refund for medical expenses not included. Whether an income and the percentage by which an income is included for calculating the amount of the loan differs per bank.
The important rule in this respect is that an income must have a stable and permanent character. The income must therefore continue to exist in the same way. As a result, banks also take other incomes such as; rental income, overtime, irregularity and shift work allowances, annuity and disability insurance, commission and / or a year-end bonus (in part).
Calculate your maximum loan
The most important components for calculating a maximum loan are: the fast costs, the costs of living and the income. The amount of the fixed costs and the costs of living are clearly calculated and are determined by banks at the same level. Which (part of) the net income a bank takes into account for the maximum loan calculation can differ per bank.
Lending companies are happy to help you determine which income can be included in the calculation.