How Much Personal Loan Can You Actually Borrow? Serviceability Explained

The amount you want to borrow and the amount a lender will actually approve aren't always the same number, and the gap between them comes down to something called serviceability. Here's how it works.

It's worth understanding before you apply rather than after, because a decline sits on your credit file whether the reason was fair or not. Most declines aren't about income. They're about commitments the applicant didn't think counted, or an expenses figure that didn't survive a look at the bank statements.

What serviceability actually means

Serviceability is a lender's assessment of whether you can comfortably afford the repayments on the loan you're applying for, based on your income, your existing expenses and debts, and a buffer for the unexpected. It's not just "do you earn enough". It's "once everything else is accounted for, is there genuinely enough left over."

There's law behind it. Under the National Consumer Credit Protection Act, lenders and brokers have responsible lending obligations: they have to make reasonable inquiries into your situation, verify what you've told them, and assess whether the credit would be unsuitable for you. That's why you get asked for statements rather than taken at your word, and why a lender will sometimes decline a loan you're confident you could afford.

How the calculation is built

Most lenders arrive at a single number: your monthly surplus. They take your income, adjust it for type and reliability, subtract your assessed living expenses, subtract the assessed repayments on everything you already owe, then subtract the repayment on the loan you're asking for, tested at a buffered rate. What's left is the surplus, and it needs to be positive with room to spare.

That's the whole mechanism. Every lever you have, and every lever the lender has, moves one of those four lines.

What lenders look at

• Income, not just the headline figure, but its type and reliability (permanent employment, casual, self-employed, commission-based income are often treated differently)
• Existing debts. Other loans, credit card limits rather than balances, buy-now-pay-later accounts, and any other regular credit commitments
• Living expenses. A realistic estimate of your regular costs, which lenders are required to assess properly rather than just take your word for on a rough guess
• Dependents. More dependents generally means a higher assumed living expense baseline

How different income types get treated

Not all income counts fully, and this surprises people whose pay is genuinely reliable. Base salary from permanent employment is the cleanest case. Overtime, bonuses, commission and allowances are usually counted at a reduced percentage, if they're counted at all, and lenders often want to see a history of them rather than one good year.

Casual income typically needs a minimum period in the role. Self-employed income is usually taken from tax returns and financials rather than from what the business banked last month, which means a good current year may not help until it's lodged. Rental income is shaded to allow for vacancy and costs. Government payments and child support are treated differently by different lenders, and some won't count them at all.

None of that is a judgement about you. It's the lender estimating what your income would look like in a bad year rather than a good one.

What your expenses get measured against

Declaring a low expenses figure doesn't help. Lenders compare what you declare against a benchmark estimate built from household size, dependents and income level, and they generally assess on the higher of the two. Declare a number well under the benchmark and you'll be asked to justify it, usually against your own statements.

Your statements are the reference point either way. Regular subscriptions, school fees, private health, gambling transactions, transfers to family, and buy now pay later instalments are all visible there. It's much better to present an accurate figure with an explanation for anything unusual than to have the assessor find it and draw their own conclusion.

Why credit card limits matter, not just balances

Even a card you always pay off in full is usually assessed at its full available limit, not your current balance, because you could draw on the whole limit at any time. A card with a large limit you rarely use can still meaningfully reduce your assessed borrowing capacity.

The way it works in the calculation is that the limit gets converted into a notional monthly repayment, typically a set percentage of the limit, and that amount is treated as a commitment you're already carrying. Reducing a limit you don't use, or closing a card you've stopped using, removes that line from the assessment. Closing an account means clearing the balance first and asking the provider to close it, then keeping the confirmation, because an account that's merely empty is still an open limit as far as the assessment is concerned.

Why a rate rise buffer gets applied

Most lenders assess your serviceability with a buffer added on top of the actual rate you'd pay. Commonly a few percentage points higher than the advertised rate. This protects both you and the lender against approving a loan that only works at today's rate and becomes unaffordable if rates move.

Two details make this bigger than it looks. The buffer usually applies to your existing variable debts as well as the new loan, so an existing mortgage is assessed at more than you actually pay on it. And many lenders also apply a floor rate, which is a minimum assessment rate used when the buffered rate would still be low. The buffer's size comes from regulatory guidance and each lender's own policy, and it changes over time, which is why capacity at one lender can differ noticeably from another on the same set of numbers.

An illustration of the surplus calculation

The numbers here are invented, deliberately round and illustrative only. They're not rates, repayments or policy from any lender. They're here to show the shape of the calculation.

Say your household takes home $6,000 a month. The assessed living expenses come out at $3,200. You have a car loan with a $450 monthly repayment, and a credit card with a $10,000 limit, which at an assessed 3% of the limit adds $300 a month whether or not you owe anything on it. That's $3,950 committed, leaving $2,050.

The personal loan you want has a real repayment of $600 a month, but assessed at the buffered rate it's treated as, say, $700. Your surplus is $1,350, and the lender then decides whether that's comfortable enough given your dependents and the stability of your income.

Now reduce that credit card limit to $2,000. The assessed commitment drops from $300 to $60, and $240 a month moves back into your surplus. That single change, which costs you nothing if you weren't using the limit, is often worth more to the assessment than a pay rise.

How to get a clearer picture before you apply

• Pay down or close credit cards and other credit lines you don't actively use
• Have a genuinely accurate picture of your regular expenses ready, rather than guessing low and having it queried
• Avoid taking on new debts or making large purchases in the lead-up to an application

Add one more: leave your statements tidy for a few months before you apply. Not manipulated, just clean. Regular saving, no dishonours, no overdrawn accounts and no last minute transfers that need explaining all make the assessment simpler, and a simpler assessment is a faster one.

Questions worth asking before you apply

Why is the approval lower than the calculator said?

Because the calculator used the real rate and your own estimate of your expenses, and the lender used a buffered rate and its own assessment of both. Calculators are useful for comparing scenarios against each other. They're not a prediction of what a lender will do, and they don't know about your credit card limits.

Does pre-approval mean you're approved?

No. Pre-approval is a conditional indication based on information that often hasn't been fully verified, and it carries conditions. Formal approval is the lender's unconditional yes after everything has been checked. Pre-approval is genuinely useful for knowing your range before you commit to a purchase, but treating it as money in the bank is how people end up stuck between a signed contract and a changed assessment.

Do multiple applications make it worse?

They can. Every application leaves an enquiry on your credit file whether or not it's approved, and a cluster of enquiries in a short window reads as financial stress rather than shopping around. That's the argument for having your position checked against lender criteria before applying, rather than applying repeatedly and hoping one lands.

What if your income has changed recently?

Say so upfront. A new job in the same field with a higher income is usually fine and sometimes only needs one payslip and a contract. A career change, a move from permanent to contract work, or a recent return from parental leave all have policy attached to them, and the policy differs between lenders. It's a question of matching you to a lender whose policy fits, which is far easier before an application than after a decline.

What to have ready

Serviceability gets assessed on documents, so the documents are the job.

• Recent payslips, or two years of tax returns and financials if you're self employed
• Bank statements for your everyday accounts covering the last few months
• Statements for every loan, card and buy now pay later account, showing limits and repayments
• An honest living expenses figure, built from your statements rather than estimated
• Details of dependents and any shared financial commitments
• An explanation for anything unusual on your statements, ready before you're asked
• Your own credit report, so nothing in the assessment is a surprise
• Confirmation of any credit accounts you've closed or limits you've reduced

The practical takeaway

Serviceability, not just your desired loan amount, is what actually determines what you'll be approved for. Two people wanting to borrow the same amount can get very different outcomes depending on their existing commitments and expenses, which is exactly why a pre-check against real lender criteria is worth doing before you commit to a full application.

Compare City checks your situation against serviceability criteria across our panel first, so you're applying with a realistic number rather than guessing and risking a decline.

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