Credit Loans

How Much Can I Borrow?

When you need money to buy a home or pay moving expenses, you may ask, “How much can I borrow?” The amount of money you can qualify to receive with loans greatly depends on the information found in your credit report. Keep reading to learn how your credit score affects your eligibility for loans and how much money you could get with various loans. 

Is My Credit Score High Enough To Borrow Money?

It’s essential to understand your credit score and stay updated on it. Financial experts recommend checking your FICO score at least once a year. Suppose you intend to apply for an apartment or a loan. In that case, it’s a good idea to check your score before submitting an application. 

Having a low credit score can make it harder for potential borrowers to get approval for funding. But how low is too low? Credit scores are split into five numerical categories based on the credit scoring model.      

  • Poor — 300-579
  • Fair — 580-669
  • Good — 670-739
  • Very Good — 740-799
  • Excellent — 800-850

The higher your credit score is, the better your credit report will look to lenders. A high credit score indicates that you are financially responsible. Lenders rarely hesitate to approve applicants that are likely to repay their loans on time. 

Lenders view credit scores higher than 670 as good. If your FICO score is lower, you may still qualify with multiple lenders if your credit is 580 to 669. Scores within this range indicate you are a subprime borrower. Subprime borrowers are people that represent a higher lending risk to lenders. You may get approval for personal loans or credit cards, but your repayment terms may be less than ideal.  

Lenders consider individuals with a credit score lower than 580 as high-risk borrowers. Qualifying with a financial institution may be very hard. However, keep in mind that every lender has different qualifying requirements. There are loans for people with bad credit that offer flexible approval and manageable monthly payments. If you can provide proof of income, you could qualify for emergency cash with less than perfect credit. 

What Is a Debt-to-Income Ratio?

Want to answer the question, “How much can I borrow?” Just look at your income! Your gross monthly income plays a vital role during the qualification process for loans.

When lenders receive an application, they take a close look at your income and your existing debt. There is a lot of crucial information on your credit report. Lenders can view your monthly payment history, financial accounts, credit limits, and more. If you have a lot of existing debt, lenders will consider if you will struggle to pay an extra monthly payment. 

How to Calculate Your Debt-to-Income Ratio

To calculate your debt-to-income ratio, divide your total monthly debt payments by your gross monthly income. Lenders use the number of this calculation to gauge your ability to successfully afford another monthly payment.     

Suppose your monthly payment for an auto loan is $600, your monthly payment for student loans is $200, and your monthly payment for various debts is $300. Your total monthly debt payments are $1,100. If your gross monthly income is $3,000, your debt-to-income ratio is 36% when you divide $1,100 by $3,000. 

Financial experts advise borrowers to keep their debt-to-income ratio lower than 43%. When your ratio is higher, lenders may hesitate to qualify you for funding under the belief you will struggle to pay another monthly payment. You may not get the maximum mortgage amount if you have a high debt-to-income ratio. It may also be hard to qualify for an auto loan since car payments would further disrupt your debt-to-income ratio.

If you want to borrow a lot of money and get an affordable interest rate, it’s good to start looking for ways to pay off debt faster

How Much Can I Borrow With a Mortgage Loan?

If you want to buy your first home, it’s essential to know how much house you can afford to buy. If you buy outside your means, your mortgage payment can be excessively high, and repayment can become a struggle. 

The more you spend on a home, the higher you can expect your monthly payment to be. Keep in mind that you may have to pay additional costs when buying a home. For example, if you provide less than 20% as a down payment, you will have to get principal mortgage insurance (PMI). This form of insurance protects the lender if you experience financial issues and stop making payments. 

Finding out the amount you can borrow with a mortgage loan is easy. Simply use a mortgage calculator online to discover your purchase budget. You will need to input the following information online:

  • Your annual income
  • Total monthly debts
  • Down payment 
  • Preferred loan term 
  • State of residence 
  • Current credit score

You can get a mortgage loan estimate based on this data. If the mortgage loan estimate is not as high as you want, it’s a good idea to start working on improving your credit score and saving more money for the down payment. 

How Much Can I Borrow With an Auto Title Loan?

The amount you can borrow with an auto title loan depends almost entirely on your vehicle’s value. The more equity your car has, the more money you could borrow with car loans.   

To calculate how much positive equity you have in your vehicle, you need to know how much your car is worth on the market and how much you still owe on the vehicle. You can use the Kelly Blue Book to input your vehicle information and get an estimate of your car’s current value. You will need to know the make, model, style, year, and current mileage. 

Once you know how much your vehicle is worth, you can subtract the total from the remaining principal balance of your auto loan. Suppose your car is worth $10,000, and you still owe $2,000 to the lender. Your vehicle’s equity is $8,000. This number is a rough estimate of the loan amount you could borrow with an auto loan.

Keep in mind that your car is used as collateral during the repayment process. If you have issues paying back the title loan, you may lose possession of your car.

How Much Can I Borrow With a Personal Loan?

Personal loans are convenient because you could use the money for various expenses, unlike an auto or mortgage loan. Most lenders do not require collateral, so you do not have to risk losing personal property. The amount you can borrow with a personal loan is based on your credit card and income. 

Make sufficient money and have a FICO score higher than 670? You may qualify for a high loan amount and reasonable interest rates. If you have bad credit, you could still be eligible for a personal loan. Lenders have differing qualification requirements, so finding a flexible lender willing to work with different financial backgrounds may take time.  

Things To Keep in Mind

When you apply for a loan, the financial institution will pay close attention to your annual income and credit report. If your credit score is not very high or you have a lot of existing debt, you may not qualify for a sizable loan amount. Many lenders are hesitant to work with people who already have copious debt. Working on paying off existing debt and improving your credit score can 

When applying for loans, it’s always a good idea to talk to more than one lender. Every lender offers different benefits, so ensure you shop around to find one that offers affordable terms and is willing to work with your finances.

References:

What is a Good Credit Score?
What is a debt-to-income ratio? 
What is private mortgage insurance?