When applying for any type of loan you may hear the term ‘borrowing power’. This is the amount of money that a loan applicant may be approved to borrow by a lender and is a commonly-used reference by many lenders. An individual’s borrowing power can impact a number of aspects of a boat loan and many other types of loans. Jade Boat Loans provides an explanation of borrowing power, how it can impact a boat loan offer and interest rate and ways that loan applicants can address their borrowing power to achieve a better boat loan offer.
Borrowing Power: Defined
Borrowing power or borrowing capacity is the capacity or limit of an individual to take on debt. While used widely and publicly in regard to home loans, borrowing power is somewhat of a ‘given’ in the assessment process of applications for a wide range of finance and loans. It is the amount of the total loan that is assessed as acceptable for an individual applicant by a lender.
In regard to home loans, there can be set calculations which determine borrowing power. Many lenders including those we are accredited with, provide calculations to determine how much a loan applicant might be able to borrow.
Under Consumer Credit Laws, Licensed Credit Providers such as Jade Boat Loans must adhere to specific guidelines in assessing loan applications in regard to capacity to service the loan.
Arriving at a borrowing capacity figure, lenders will consider many aspects of an individual’s financial situation. These aspects include but may not be limited to: income, existing debts, assets and general expenses. Credit profile may also be included and is definitely part of the loan assessment and approval process.
Borrowing capacity differs from a credit score in that a credit score is based on an individual’s trustworthiness to repay loans. Credit providers report defaults and loan applications and other issues which go towards the score.
The borrowing capacity is based primarily on the financial ability for an individual to repay a certain loan amount. While typically borrowing power is associated with home mortgages it also has significance for other types of personal loans including boat loans.
Impact on Boat Loan Offers
When assessing boat loan applications, our consultants and our lenders will review the income/expenditure of the individual. If the outcome is that lender does not consider the applicant to be in a position to essential afford the repayments on the amount requested, there may several outcomes:-
- The application may be rejected.
- The lender requests that the total loan amount be reduced. This may affect those seeking no deposit finance. In these instances the applicant may be in a position to reduce the loan amount by paying a deposit to the seller.
- A higher risk assessment is derived which may attract a higher interest rate on the loan being offered.
- Applicants considering a lower priced boat.
Ways to Improve Borrowing Power
Borrowing beyond one’s capacity to service or repay the loan can lead to financial difficulties. So before over-extending and prior to applying for a loan, individuals can address their financial situation. Making an honest appraisal of what they can afford.
If looking to purchase a boat with say a high price tag and hoping for a no deposit finance boat loan, individuals can look to improving their borrowing power prior to applying for a loan in a number of ways.
These can include reducing existing debts. This may mean clearing credit card balances and finalising other loans such as car loans or other personal loans. In essence, improving the personal or household balance sheet.
Another way is to reduce weekly/monthly expenses over a period of time which establishes a spending track record which is verifiable by a lender. This will be a personal process and based on individual preferences, but could involve cutting back on discretionary and non-essential items. This can have the effect of reducing the expenses side of a personal balance sheet while also potentially increasing the assets or income side. Showing that the individual has additional funds from weekly/monthly earnings to cover a boat loan.
Increasing income is also a way to improve borrowing power but this may not be a simple or easily attainable goal for those on wages or a fixed salary.
If a lender rejects a boat loan application for the amount/boat requested, individuals may consider purchasing a lower priced boat which requires a smaller loan amount.
While, as we mentioned above, credit score and balance sheet are different, it is always advisable for individuals to know and review their credit profile and score prior to applying for a new loan.
Using a broker such as Jade Boat Loans to handle your boat loan sourcing and application approval process may also be of significance. While we clearly are not in a position to change your income/expenses balance sheet, our consultants are expertly trained and skilled to know which of our lenders will make the best offer for specific customers and to negotiate on interest rates and other aspects of the loan.
Calculating Boat Loan Repayments
If you are wondering what a certain boat purchase may cost you in terms of repayments, use our Boat Finance Calculator. This is a great tool for establishing a personal viewpoint on affordability and assisting in deciding which boat you should be considering.
For further information on your borrowing capacity in relation to a boat loan, contact Jade Boat Loans on 1300 000 003
DISCLAIMER: THE INFORMATION AND SPECIFIC DETAILS CONTAINED IN THE CONTENT OF THIS ARTICLE HAVE BEEN PREPARED AND ARE PRESENTED PURELY AS GENERAL INFORMATION AND NOT INTENDED AS THE ONLY SOURCE OF FINANCIAL ADVICE FOR BOAT BUYERS AND LOAN BORROWERS. FOR THOSE THAT CONSIDER THEY REQUIRE SPECIFIC ADVICE, THEY SHOULD CONSULT WITH A FINANCIAL ADVISOR. LIABILITY IS NOT ACCEPTED IN REGARD TO ERRORS AND MISPRESENTED DATA AND DETAILS HEREIN.