Your borrowing power impacts the amount a lender will consider lending you. 

Banks and other lenders typically look at your disposable income when assessing how much you can borrow. As interest rates have risen, borrowing power has decreased, so if you are getting yourself ‘loan ready’, applying some strategies could make a significant difference to the amount you could borrow. 

Increase Income 

Ask for a pay review or increase your hours: Put together details of your contributions in your role and provide information to justify a salary increase. Alternatively, ask if you could work additional hours. 

Find a second job or side-hustle: There are many ways to boost your income, such as a second job, renting out a room in your home or creating a side income. A side income may be linked to something you enjoy or may be particularly good at, such as dog walking, cleaning, general home repairs, babysitting, lawn mowing, photography, home care services, and more. 

Reduce Bad Debt 

Reduce limits on credit cards: The balance owed on your credit card does not determine your borrowing power. Instead, the limit on your credit card is what is taken into consideration by lenders. This means even if you pay off your credit card in full every month, having a high limit can still negatively impact your borrowing power. 

Pay off any high interest loans such as car loans or any buy-now-pay-later debts: Lenders look at your credit history when assessing your borrowing power, so it’s crucial to keep your debts under control. This can be done by paying off outstanding balances, avoiding unnecessary purchases, and opting for lower interest loans. 

HECS debt: In certain circumstances, it can be beneficial to pay off your HECS debt as lenders consider this debt as part of your overall debt position. 

Consolidating loans: This can be a wise move as it can reduce your monthly repayments. However, due to compounding interest, it may result in a greater amount paid over time. 

Reducing Expenses 

Utility rates: You may be able to negotiate with your utility provider to get a better rate, or move to an alternative (cheaper) provider. 

Insurances: These are adjusted (upwards) each year but your needs may have changed. For example, many people don’t look at the extras they pay for with their private health cover and changing those, or your excess, can reduce your premium. Changing your home or car insurance excess can also reduce premiums. 

Subscriptions and memberships: Analyse your subscriptions and memberships and get rid of any you don’t use. This includes your mobile and internet plans, any streaming services and club memberships. 

Living expenses: Check your bank statements and determine what you spend on food, restaurants, takeaway coffees, and other special treats. Small adjustments can make a big impact over time. 

The Importance of Professional Advice 

The assistance you can get from a broker cannot be understated. 

A broker can look more closely at debt consolidation strategies (which need careful consideration). They can also provide information about what deposit will be required, what may be achieved with Lenders Mortgage Insurance, possible Stamp Duty concessions, and information regarding grants (many lenders allow you to count a first home buyer grant towards a deposit). 

A broker can provide guidance around whether you make principal and interest or interest only repayments. While interest only payments may seem attractive, opting for principal and interest can give you greater borrowing power. 

A strong borrowing power can open doors to better loan options and improve your overall financial well-being, so it’s crucial to understand and actively work towards improving it. With the right strategies, you can achieve your financial goals and thrive in today’s borrowing market. 

Credit Representative 541104 is authorised under Australian Credit Licence 389328.  Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product.