When one wishes to subscribe a credit, it is important, beforehand, to calculate one’s indebtedness. If only you know if the project is viable for the banks or credit agencies that will appeal.
Debt rate, what is it?
The debt ratio is the percentage of debt relative to income. As soon as one wishes to contract a first credit or an additional credit, it is necessary to calculate it to know if this operation is, on the one hand, possible, on the other hand, reasonable. Indeed, the presence of too much debt should alert the possibility of being unable to repay.
Debt rate: What is the limit for the borrower?
In general, it is estimated that the debt ratio should not exceed one third of revenues, ie 33%. It is on this figure that will be based the credit organization that will grant or name the payday loan. However, in the case of a repurchase of credit, which precisely makes it possible to decrease the indebtedness, this percentage can be increased. It is not uncommon for people who ask for a repurchase of credit to be overflowed – because of a loss of income in particular, to the point of having a debt ratio of more than 80%! In this case, the banks estimate that a debt ratio reduced to a range of 40 to 50% is reasonable. It all depends on the income of the borrower and what is called the rest to live. The lower the income and the lower the living, the lower the percentage of indebtedness granted, sometimes less than 30%. It is estimated that 600 euros for a person living alone and 450 euros for each member of the same household is an acceptable living. Borrowers with very good incomes who have a stable situation (civil servant) can therefore take out a loan resulting in a debt ratio of nearly 50%.
Calculation of the debt rate
The calculation of a debt ratio is based on the formula:
For example, for a borrower who has 1,500 euros of net income per month and who has not subscribed, to date, no credit. If he wants to buy a car and take out a credit over 3 years, whose monthly payment would be 500 euros per month, his debt ratio would be:
Its debt will be maximum, but auto credit can be accepted.
Debt simulation: What elements to provide?
To simulate debt, the borrower must provide a number of elements to inform the credit agency about its current situation:
- his identity and nationality;
- his age;
- the amount you want to borrow;
- the duration of the credit: from 5 to 25 years for a mortgage, from 1 to 7 years for a consumer credit, from 5 to 12 years for a credit buy-back in general;
- expenses: rent, electricity, possible alimony, etc.
With these elements, the online credit simulator will locate the debt ratio and check whether the credit application is receivable.
Debt rate: A key element o the credit application
When applying for consumer credit, the bank or agency contacted will carefully review the file. This in-depth study is called scoring. In scoring, the debt ratio is one of the most important elements in determining the profile of the borrower: if it exceeds the debt ratio, it is classified as risky, however some details may influence as the fact to own or to have savings. Other factors such as work status and age are also important in the bank’s decision.
Debt rate: Aceeptance by the credit bofy
If the credit institution considers that the debt ratio remains within an acceptable limit, the borrower can apply for credit. The organization then sends him a proposal which he must study all the elements:
- credit rate;
- credit insurance rate;
- total cost of credit and insurance;
- penalties for early repayment, etc.
- However, this proposal can not be accepted until the organization has received all the documents justifying the situation of the borrower:
- pay slips or tax forms;
- proof of charges;
- amortization tables or statements of credits already in progress.
Only after having all these elements will the organization be able to position itself definitively and grant credit in a definitive manner.