Worked Examples and Checklists
How much can I borrow with a personal loan? Working out your limit from your budget
How Australian lenders estimate the maximum personal loan you can afford, with an illustrative budget, the reverse repayment formula and the factors that raise or lower your limit.
How much you can borrow with a personal loan depends mainly on the monthly surplus left after your living expenses and existing debt repayments, the term, and the rate the lender uses to test you. A lender works backwards: it decides how much of your surplus can safely go to a new repayment, then calculates the loan that repayment would support. In the illustrative example below, a $650 monthly repayment at 13% supports about $28,600 over five years, but only about $19,300 over three years. Most lenders also set their own minimum and maximum loan amounts, so the figure is a ceiling, not a target.
This guide is part of the personal loan requirements guide. Figures are illustrative; each lender uses its own policies and benchmarks.
Step 1: Work out your monthly surplus
Use your after-tax income and realistic expenses. Lenders typically look at bank statements and compare your declared expenses with a benchmark for your household type, and use whichever is higher.
| Item | Monthly (illustrative) |
|---|---|
| Net salary | $5,200 |
| Rent | −$2,000 |
| Groceries, utilities, transport, phone, insurance | −$1,450 |
| Childcare, education, health | −$300 |
| Entertainment and other discretionary spending | −$250 |
| Existing car loan | −$300 |
| Surplus before new loan | $900 |
If you have credit cards, lenders usually count a monthly commitment based on the full limit, often around 3% of the limit, even if your balance is zero. A $10,000 limit could therefore reduce your assessed surplus by about $300 a month.
Step 2: Keep a buffer
A lender will not usually let the whole surplus go to the new repayment. It may keep a margin for irregular costs, or test the repayment at a rate higher than the one it will charge you. Suppose a buffer of $250 a month, leaving $650 for the new repayment.
Step 3: Turn the repayment into a loan amount
The reverse of the repayment formula is:
- maximum loan = repayment × (1 − (1 + r)^−n) ÷ r
where r is the monthly rate and n the number of months. At an assessment rate of 13% (r = 0.010833):
| Term | Maximum loan for a $650 repayment (approx.) |
|---|---|
| 3 years (36 months) | $19,290 |
| 5 years (60 months) | $28,570 |
| 7 years (84 months) | $35,730 |
You can check any figure in the repayment calculator: enter the loan amount, rate and term, and see whether the repayment fits your budget.
What moves the limit up or down
| Change | Effect on the 5-year limit (illustrative) |
|---|---|
| Repayment capacity falls to $500 | About $21,980 |
| Repayment capacity rises to $800 | About $35,160 |
| Assessment rate 11% instead of 13% | About $29,900 |
| Close a $10,000 card limit (assessed at $300 a month) | Capacity can rise by up to $300, adding over $13,000 to the limit |
Reducing unused credit limits often makes a bigger difference than a slightly lower interest rate.
Other factors lenders weigh
- Income type: overtime, bonuses, commissions and casual income may be counted only partly or require a longer history.
- Self-employment: usually assessed on tax returns over one or two years.
- Dependants: increase benchmark expenses.
- Credit history: recent missed payments may lead to a lower limit or a decline.
- Purpose and security: a secured car loan may allow a larger amount than an unsecured loan.
- Lender policy: product minimums and maximums, and caps on the share of income going to debt.
Responsible lending law requires the lender to assess whether the loan would be unsuitable; see responsible lending. The lender's assessment is not a guarantee that you can afford the loan; your own budget is the better test.
Borrow less than the maximum
The largest amount a lender will approve leaves you with only the buffer it chose. Consider:
- Real-life variability. Car repairs, medical bills and rent increases arrive unannounced.
- Rate changes. On a variable loan your repayment could rise; see fixed vs variable.
- The total cost. A longer term raises your borrowing limit but adds interest; see the repayments worked example.
- Future borrowing. A large personal loan reduces how much you could borrow for a home later.
Frequently asked questions
Can a lender approve more than I asked for?
Lenders generally assess the amount you apply for. If they suggest a higher amount, consider whether you need it; a larger loan costs more and must still be not unsuitable for your requirements.
Do lenders count HECS-HELP debt?
Many lenders treat compulsory HECS-HELP repayments as a reduction in income, because they are withheld from pay above the repayment threshold. Policies vary.
Does a partner's income count?
Only if they are a co-borrower on a joint application, in which case both are liable for the full debt. Some lenders consider shared household expenses in a single application.
What is the minimum personal loan amount?
It depends on the lender. Many mainstream personal loans start at a few thousand dollars. For very small amounts, compare alternatives first; see payday loan rules.
Sources and where to check
- ASIC Moneysmart — budget planner and personal loan calculator
- ASIC — Regulatory Guide 209 on responsible lending
- National Debt Helpline — free budgeting help, 1800 007 007
