How much can I borrow? How lenders really work out your borrowing power

Online calculators give you a single number, but borrowing power isn't a fixed figure. Each lender runs your details through its own model, and the results can differ by tens or even hundreds of thousands of dollars. Understanding the moving parts helps you plan and avoid disappointment.

The basic formula

Lenders start with your income after tax, subtract your living expenses and existing commitments, and see what's left to service a new loan. They then test whether you could afford the repayments if rates were higher.

1. Income, and how much of it counts

• Base salary: usually counted in full.
• Overtime, allowances and bonuses: some lenders count most of it with a history of consistency; others shade it heavily.
• Rental income: typically only 70–80% is counted, to allow for vacancies and costs.
• Self-employed income: usually based on one or two years of tax returns. See our self-employed guide.

2. Living expenses

Lenders compare your declared expenses with a benchmark and use whichever is higher. Having clear, sensible spending in your bank statements helps.

3. Existing debts

Car loans, personal loans, HECS/HELP and buy-now-pay-later all reduce what you can borrow. Credit card limits are assessed as if fully drawn, so a $20,000 limit you never use can still cost you a meaningful amount of borrowing power.

4. The serviceability buffer

Regulators expect lenders to test your ability to repay at a rate around 3 percentage points above the actual rate. It's why your borrowing power can feel lower than the repayments suggest.

Ways to increase your borrowing power

1. Close or reduce credit card limits you don't need.
2. Pay off small debts such as a car loan or buy-now-pay-later before applying.
3. Choose a lender that treats your income type well, particularly overtime, commission or self-employed income.
4. Consider a longer loan term, keeping in mind it means more interest over time.
5. Apply jointly if appropriate.

Borrowing power is not a budget

Just because a lender will lend an amount doesn't mean it's comfortable for you. Test the repayments with our repayment calculator and leave room for rate rises, children and life changes.