Each bank will check our creditworthiness before granting us any loan – in order to calculate whether we are able to pay the debt in a timely manner. Excessively indebted persons may, therefore, be deprived of the possibility of obtaining another loan if their monthly installments exceed a certain amount.
How to check how much debt we can have?
Each of us has situations that are difficult to predict, requiring considerable financial outlays. Unfortunately, not everyone has savings allocated to these unplanned expenses.
Therefore, in crisis situations for our portfolio, we often turn to the bank for help. The only question is, doesn’t it happen too often? How to check if the debt limit has not been exceeded yet?
Credit can make our lives easier, but only if it is taken out with our heads. To protect their interests, as well as to protect clients interested in another loan from excessive debt, they carry out a credit procedure aimed at examining the creditworthiness or the possibility of paying off the debt. If the customer exceeds the specified limit of monthly payments for the debts incurred – he cannot count on the next bank loan.
How does the bank verify our credit standing?
How does he know that each month we have enough money to pay for the next installment? In Poland, no regulations regulate how much maximum loans and borrowings you can have at one time.
Well, banks are guided by the so-called DTI (the abbreviation comes from English: debt to income – which means: debt to income). It is a measure that allows us to determine what part of our income we spend on paying off bank liabilities. It is calculated as follows:
e.g. (a + b + c) / d = DTI
a – means the monthly amount of cash loan is repaid (e.g. USD 350)
b – means the monthly amount of the mortgage loan to be repaid (e.g. USD 1,400)
c – means the monthly amount of cash loan is repaid (e.g. USD 400)
d – means the monthly amount of remuneration (income)
DTI – an indicator that allows you to determine how much of your income is spent on paying off your debt
i.e. (USD 350 + USD 1,400 + USD 400) / USD 4,200 = 51% of the sum of all monthly installments
In Poland, banks assume that the DTI should not exceed 50% or 65% for borrowers with an income exceeding the national average (currently around USD 3,000 net)
Such a conversion does not guarantee
That we will be able to pay all installments and other obligations on time. We should calculate whether we can deal with the debt. No bank will calculate the actual maximum amount that we are able to pay back. He uses only the old methods of calculating creditworthiness, which after all does not work 100%.
If the bank refuses to grant us another loan, loan or credit card, let it signal to us that our debt has reached a dangerous limit. This means that it is time to change various financial habits and habits, and wisely manage the funds earned, thus reducing unnecessary expenses.