When it comes to borrowing money for personal expenses or investments, having a clear understanding of your loan limits is essential. Your loan limit refers to the maximum or minimum amount of money you are authorized to borrow from a lender. It’s important to have a conversation with your bank representative or financial advisor about your loan options, including your loan limit, as it can greatly impact your financial goals.
Notably, knowing one’s maximum loan limit does not imply that they should go ahead and borrow as per the limit. It is crucial to analyze and decide on the best way to utilize the borrowed amount so as to positively impact one’s financial goals.
There are several factors that impact your loan limit, including your credit score, credit history, debt-to-income ratio, and employment history.
Credit Score
Your credit score plays a crucial role in determining your loan limit. Lenders use your credit score as an indicator of the risk they would face if they approved your loan. It’s essential to keep your credit score in good standing, as late or missed payments, or loan defaulting can negatively impact it.
Your credit history is also taken into consideration by lenders. They will analyze your credit report to look for any inconsistencies or red flags, such as multiple loan inquiries or different types of loans taken at once. This helps them determine the level of risk you pose as a borrower.
Debt-to-income ratio
Another factor to consider is your debt-to-income ratio. This is calculated by dividing your monthly debt payments by your gross monthly income and gives lenders an idea of your ability to repay the loan. A good debt-to-income ratio shows that you can afford the loan and reduces the likelihood of default.
Employment History
Lastly, your employment history is also taken into account by lenders. They will look at your recent work history over the past two to three years to assess your stability and reliability. A consistent employment history with a long-standing position is seen as a lower risk compared to a recent job change or multiple job changes within a short period.
In essence, a borrower who has held the same position for over a year or two will be deemed to have be of a lower risk compared to a borrower who has just started a new job or has held many different jobs within a short period.
By understanding these factors, you can maximise your chances of either building or increasing your loan limit by taking advantage of the various LOOP Wealth Management options. This will give you the ability to access the funds you need to reach your financial goals.
Remember, just because you have a high loan limit, doesn’t mean you should necessarily borrow the full amount. It’s essential to carefully evaluate and decide on the best way to use the borrowed funds for a positive impact on your financial wellness.
