What is borrowing power?

Borrowing power refers to the maximum amount of money a lender is willing to lend you based on your financial circumstances. It is essential to determine the borrowing power before applying for a loan or mortgage. Generally, the borrowing capacity is evaluated on various factors such as income, expenses, debts, assets, credit score, and age.

The lender usually assesses your income and expenses to determine your capacity to repay the loan amount over the loan term. The lender also considers your credit score and credit report to assess your creditworthiness. A higher credit score and a good credit report can improve your borrowing capacity.

Your assets and liabilities also play a crucial role in determining your borrowing power. Lenders consider your assets such as savings, investments, and property to determine if you have enough security to repay the loan amount. Liabilities such as existing debts and other financial commitments can impact your borrowing power negatively if they consume too much of your income.

To maximize your borrowing power, it is advisable to pay off any existing debts and improve your credit score before applying for any loans. You can also consider getting a co-signer or providing additional security to increase your borrowing capacity.