The amount of income of the person applying for a cash loan has a decisive influence on the bank’s credit decision. It is worth knowing how much you really need to earn to make it positive.
It is worth noting that the growing sales in terms of value was due to increased interest in medium- and high-value loans. The Retrodatabase study shows that in the first half of 2019, the dynamics of the increase in the number of consumer commitments granted in the amount of 15 to 50 thousand USD 7%, from 50 to 100 thousand USD 15%, and above 100,000 USD 11%. The obvious conclusion is that there is a relationship between the amount of income and the creditworthiness of customers and the amounts of liabilities actually incurred by them. In other words, Poles earn more and more, which is why they can count on increasing cash and installment loans.
Income and chances of getting a cash loan
After receiving an application for a cash loan, bank analysts proceed to assess the customer’s creditworthiness, i.e. analyze the maximum loan amount he will be able to repay. The most important factor they take into account at that time is his earnings – as a rule, the higher they are, the more he can borrow the sum.
What is important, however, is not only the amount, but also the “quality” of the client’s income, including the legal form of employment and seniority of the current employer. Based on this information, analysts can see if income is stable and regular, and what are the chances of it being maintained during the repayment period.
Banks like clients with an indefinite employment contract the most, but entrepreneurs or employees working under civil law contracts are not in a lost position. Lenders take into account any regular, documented income, but the fact is that some sources of earnings are discriminated against in some ways. For example, in the case of specific work contracts, they usually reduce their income by tax deductible costs (i.e. by 20 or 50%), while for flat-rate activities by up to 60%.
Impact of expenses and other obligations on the credit decision
A cash loan can be obtained by a client who earns enough to be able to cope with current expenses as well as monthly repayment. Therefore, it is important for the bank not only how much he earns but also how much he spends. By comparing the client’s monthly income and costs, he can find out what amount is at his disposal.
In the case of cash loans, banks do not, as a rule, review clients’ expenses in detail, but are based on average data provided by the Central Statistical Office. At the same time, they focus on the most important cost category, i.e. expenses related to maintenance: for the purposes of calculating creditworthiness, they assume that in single-person households they amount to about 1000-1300 USD, and each subsequent household raises their amount by about 800-1000 USD.
Under this approach, a self -supporting single with a net earnings of USD 2,000, net of costs, has a maximum of around USD 1,000 available. This amount must be sufficient for him to repay the cash loan installments and to pay all other expenses.
It should be emphasized that the bank always checks the database of the Credit Information Bureau, where it checks the current state of the applicant’s debt. If he finds out that he repays a loan, a revolving limit or an installment purchase, he will reduce his creditworthiness proportionally. A large number of high obligations does not have to result in the rejection of the application, but only if the client has a sufficiently high income.
What else does creditworthiness depend on?
The Retrodatabase database also verifies information about previous customer commitments. Thanks to them and the data collected by economic information bureaus, the bank can assess the payment reliability of a given applicant, and thus the risk of lending funds to him. If he has relatively high income, but at the same time has some negative entries in the Retrodatabase or BIG, his loan application will most likely be rejected.
In addition to these factors, the customer’s creditworthiness depends on several other issues. Some of them have more or less influence, but there are also some that are completely independent of it. The latter include, among others: the amount of current interest rates, bank margin, or the algorithm used by the bank to calculate creditworthiness.
However, more important are the elements concerning the applicant, i.e. his marital status, age, education or occupation. On their basis the bank calculates the so-called credit scoring – assessment of customer credibility, which affects the credit decision, and often also the credit terms.
In practice, next to the client’s financial standing and credit history, the parameters of the potential loan: the amount and repayment date have the greatest impact on the bank’s decision. This is due to the fact that they determine the amount of loan installments, on the basis of which creditworthiness is calculated. The lower the amount of the commitment and the longer its repayment period, the lower the monthly installment, and thus the greater the chance of a positive response.
How much cash loan can you get?
Only a few years ago, when calculating creditworthiness, banks had to comply with the restrictive recommendations of Recommendation T of the Polish Financial Supervision Authority. Its provisions assumed that the ratio of the sum of the borrower’s liabilities to his net income (the so-called DTI ratio) cannot be higher than 50 or 65% (with earnings above the national average). Today, every lender has complete freedom in determining the level of this indicator that is acceptable to them, and at the same time sets the rules for calculating creditworthiness. Therefore, individual banks may offer completely different amounts of cash loans to the same customer.
Banks use different algorithms for calculating creditworthiness, but for each of them the most important criterion for assessing the application is the amount and source of the client’s earnings, as well as their liabilities. If he earns around USD 2,000 net and does not repay any other loans, any bank will be willing to borrow at least several thousand, and with a sufficiently long repayment period, even several thousand zlotys. However, it should be remembered that each case is considered individually, and the lender also analyzes other, previously mentioned factors.
It is worth knowing that the amount of cash loans can be up to USD 255,550 (this limit is imposed by the Consumer Credit Act), with the banks themselves most often applying an upper limit of USD 150,000 or USD 200,000. To be able to borrow such a large amount, you do not have to earn several thousand zlotys a month. In fact, assuming a 10-year loan period and 10% interest rate on loans, the highest possible loan amount is likely to be obtained by a childless couple with incomes around the national average.
What else is worth knowing?
Pursuant to the provisions, if a client applies for a relatively small cash loan (up to 4 times the national average) or has been cooperating with the bank in which he is applying for funding for at least 6 months, a simplified application examination procedure is used. In this case, the lender verifies only basic information about it, such as the amount and source of earnings and the credit history. Thanks to this, he can immediately get a credit response and the amount of funds due.