Loan Amount/Annual Salary Ratio?

Centerprise

I've had a quick search and cannot find any relevant info, if someone else knows its on this board please do tell me.

I was wondering, is there a maximum loan amount a lender will give that's in relation to annual salary?

I know the maximum unsecured loan is £25K, but what would you have to earn to receive this?

Is it even based on salary, or just credit rating, or do all the questions add to in the lenders mind as 'an ability to repay'?

I have had a loan before, and I remember they asked me what my annual salary was. They also did a credit check, but they did not ask what my monthly outgoings were etc, hence it would seem like those questions are actually an exercise in due dilligence when lending, as opposed to anything they base the loan amount on.

Taking into account my personal situation, I feel that a loan can give me investment money that is worth more to me now, and will repay more over time than the amount I will pay on a loan. Hence the above question.

So if my situation is:

Annual Salary minus fixed Monthly outgoings minus occasional expenses: £1166

Fair/Excellent Credit rating as per creditexpert reporting.

Then the loan calculator tells me I can borrow £25K + (Based on 24 months repayment, which is how long it'd take me to save the money anyway).

Does my annual salary amount have a bearing on such a large loan amount?

The loan would represent 47% of my annual salary, which seems a lot to me.

FYI. The return on the loan would be expected to exceed the interest rate, so assume the loan is eating into returns, as opposed to an outright cost.

Any information would be useful....

Rafter

The information isn't widely available and varies by lender.

Lenders have to assess whether you could reasonably afford repayments.

They can either do this by asking for your outgoings or estimating what they think they are based on where you live, whether you have kids, age and other factors.

They then look at your credit rating to assess how much you have borrowed, how much unused credit you have available and whether you seem to be able to manage your money well - i.e. you are up to date with payments.

Generally you can't borrow more than 50% of your salary unsecured across loans, overdrafts etc - but any lender will be nervous about giving you a big loan like this in one go. However, given your salary is £50k+ you should be a good risk and can demonstrate that you could afford the repayments?

The loan purpose has a bearing too - a car or home improvement loan is less risky than one for say a holiday or debt consolidation.

Good luck

R.

_Andy_

I doubt you'd find a loan provider that would loan for the purposes of investing.
Also I'd be sceptical whether as to what investment in today's market you feel would be good enough to achieve those kind of returns anyway.

Centerprise

Rafter - Thanks for you input, I suspected as much.

Given that they generally don't ask outgoings must mean they would only require that information in extreme circumstances I would imagine.

Andy - As long as the lendee can demonstrate an ability to pay, why would the loan company care? They are interested in their APR and the continued repayments.
If someone takes out a loan, spends it all on cadburys creme eggs, the lender doesn't care, as long as they get their guaranteed fixed repayments, and that would be why they reference your ability to return on their loan.

Clearly your scepticism has no bearing, and one should assume that for the current economic divides to exist, there must be some people making vast amounts more than others, and that those people clearly know something we don't.

a ROI of hundreds of percent is not uncommon in futures trading for example.

_Andy_

The lender will care what it's for - it's not about what I think, it's general policy of personal loan providers.

Rafter

Generally the lender will want to understand the purpose of the loan and might consider investment or business purposes ineligible.

As for whether borrowing to invest is sensible, companies (and particularly hedge funds) do it all the time but generally the gains you can make as an individual on investments are often less than the cost of borrowing, particularly as you cannot offset the cost of borrowing against the gains you make for tax purposes.

R.

Centerprise

It helps greatly then if an investment is a car....
thus its a car loan, not an investment loan.


Got it....

_Andy_

Fraud then. Nice one.

Centerprise

Wow, you know what assumptions do right?

Are you suggesting no cars appreciate in value more than 8% per year?

Might just not be your area of speciality then....

Seriously, judgemental much?