Unsecured Borrowing Lending Criteria

Jamese_2

Hi guys,

I am curious to understand a bit more about banks and their lending criteria. I understand that debt to income % amounts are very important but I suspect there maybe a total borrowing to yearly income ratio with banks? in theory I should be able to lend a substantial amount of money based on the traditional debt to income ratio but I am getting no real offers. Everything else is perfect from a pay on time perspective but my borrowing is close to my annual salary even though it is a low DTI %.

As a result I have been overpaying on existing debts to get this down as fast as possible so I can reach more favorable interest rates than what I had to secure on before. Just frustrating that I do not have access to improve my interest rate when I am not really stretched from the traditional Debt to income metric.

Assuming my suspicions are correct, I wonder what % of your total yearly income is seen as healthy and then favorable to lend? I appreciate banks keep these things closed to the outside world but any insight anyone could give would be useful to help my planning

[Deleted User]

Total limits are factored in, as well as total borrowing, but generally not to the same extent. 

It used to be said that you should keep your limit to around half your income, but that's not a particularly reliable measure and it's perfectly possible to have multiples of your income in limits.

Your existing debt is going to be be far your biggest problem.

Jamese_2

Deleted_User said:

Total limits are factored in, as well as total borrowing, but generally not to the same extent. 

It used to be said that you should keep your limit to around half your income, but that's not a particularly reliable measure and it's perfectly possible to have multiples of your income in limits.

Your existing debt is going to be be far your biggest problem.

Thanks for that, can you expand on the multiples of your income in limits part? 

[Deleted User]

Multiples as in two or more times your income.

Thrugelmir

Jamese_2 said:

Just frustrating that I do not have access to improve my interest rate when I am not really stretched from the traditional Debt to income metric.

Eventually you hit a ceiling.  What lenders will wish to see is a reduction in overall indebtedness. From your credit files containing 72 months of data, Trends will be clearly identifiable. Juggling than repaying becomes all too apparent.  Lenders have a duty to lend responsibly.  Making life easy for you doesn't address the underlying issues. 

Jamese_2

Thrugelmir said:

Jamese_2 said:

Just frustrating that I do not have access to improve my interest rate when I am not really stretched from the traditional Debt to income metric.

Eventually you hit a ceiling.  What lenders will wish to see is a reduction in overall indebtedness. From your credit files containing 72 months of data, Trends will be clearly identifiable. Juggling than repaying becomes all too apparent.  Lenders have a duty to lend responsibly.  Making life easy for you doesn't address the underlying issues. 

is that ceiling 100% of your annual salary in your view in terms of where the bank sees things in this country at least? 

[Deleted User]

It's judging what is affordable - a mortgage is obviously several times your salary, but a personal unsecured loan is different.

If you had a debt of 20k and a salary of 22k it can be quite different from a debt of 100k but a salary of 100k. They will also look at loans as additional debt, not replacement debt as you could borrow (note, borrow, not lend, lending is what they do, you borrow) 20k and spend it on a holiday and then you have 40k of debt, hence they would see it as nearly 200% debt to salary

ItsComingRome

Jamese_2 said:

Thrugelmir said:

Jamese_2 said:

Just frustrating that I do not have access to improve my interest rate when I am not really stretched from the traditional Debt to income metric.

Eventually you hit a ceiling.  What lenders will wish to see is a reduction in overall indebtedness. From your credit files containing 72 months of data, Trends will be clearly identifiable. Juggling than repaying becomes all too apparent.  Lenders have a duty to lend responsibly.  Making life easy for you doesn't address the underlying issues. 

is that ceiling 100% of your annual salary in your view in terms of where the bank sees things in this country at least? 

No. You're not going to get an answer to this because every bank has different criteria and they're all commercially sensitive.

mcpitman

Depends on whether the lending is secured or unsecured.

But no-one will be able to tell you all the in's and outs, they are too many variables and each lender has a different target customer profile to make their decisions against. They are all confidential, for multiple reasons but commerciality and anti-fraud are the main reasons.

I can tell you, income to debt ratios are pretty much a thing of the past. All new calculations and based on risk and affordability. So something as simple as "salary multipliers" are a guide, but in now way accurate proxies for lender scorecards and risk algorithm's.

Thrugelmir

Jamese_2 said:

Thrugelmir said:

Jamese_2 said:

Just frustrating that I do not have access to improve my interest rate when I am not really stretched from the traditional Debt to income metric.

Eventually you hit a ceiling.  What lenders will wish to see is a reduction in overall indebtedness. From your credit files containing 72 months of data, Trends will be clearly identifiable. Juggling than repaying becomes all too apparent.  Lenders have a duty to lend responsibly.  Making life easy for you doesn't address the underlying issues. 

is that ceiling 100% of your annual salary in your view in terms of where the bank sees things in this country at least? 

Banks use the datasets held by the CRA's  to determine whether you meet their own internal lending criteria. There'll be any number of hurdles that you need to pass. Post the pandemic peak there'll be an added degree of caution.

Nebulous2

Think about it as a sliding scale, where lenders gradually drop out and rates get higher, rather than a hard ceiling.

You'll find it increasingly difficult to borrow as your total consumer debt exceeds 50% of your income. 

Once you reach 100% you are probably looking at few lenders left and higher rates than most people will accept.