Top tips to boost your borrowing capacity
4 Apr 2016
Whether it is buying that dream home, a new set of wheels, or some other significant purchase, there’s nothing more disappointing than having it slip through your fingers because the amount you need to borrow is just out of your financial reach.
But that doesn’t have to be the case, and Credit Union SA CEO, Grant Strawbridge shares his top tips on how to boost your borrowing capacity.
Consolidate unsecured debt
Consider consolidating unsecured debts into your mortgage. Why? Typically, unsecured debts, such as credit cards and personal loans, have shorter repayment timeframes that bring with them high monthly repayments. These repayment levels impact on a lenders’ calculations when it comes to your ability to repay - because unsecured debt limits the amount of uncommitted funds you have available to repay the amount that you are borrowing.
Cut the credit
Cancel the ones you don’t use and reduce the limit on the ones you keep. Any unused credit card should be cancelled, and cards with limits that exceed your credit need should be reduced. When a lender considers your ability to repay a mortgage or some other loan, it’s assumed that your credit card will be fully drawn to its limit.
Keep it clean
Make sure your financial records and payments are up-to-date. One of the more common reasons borrowers find themselves falling short of the mark is because they don’t have current financial information to prove their income to the lender. To help secure the loan you’re after, complete your tax returns, pay bills on time, maintain a budget and demonstrate good financial management.
Choose the right loan product
There can be big differences in borrowing capacity levels based on the product you select – even within one financial institution. Product features such as interest only repayments, fixed rates, variable rate discounts and lines of credit can all impact how much the lender will offer, so do your homework.
It’s true; learning about finance can be fun – particularly when it comes to growing your financial future. Grow your financial literacy by asking questions of your lender, talk with close family and friends, and speak with an accountant. When it comes to making decisions it’s critical that you seek advice about your own unique circumstances because no two borrowers are the same – what works for Aunty Jo or your cousin Pete won’t necessarily work for you.
It’s a good idea to show lenders evidence of savings over time. One way to do this is to reduce your expenses and channel the savings into your savings account. Do you really use that expensive gym membership, is there a way to reduce your monthly mobile phone costs, and can you cut down on takeaways or dining out? Cutting expenses is a great way to boost your savings and will potentially enhance your borrowing capacity.