2023-06-19 06:51:43
If you are thinking of obtaining financing to buy a car, reform your house, obtain a mortgage or even start a business, the debt capacity is an essential term that you should know. Even more so in the current economic context marked by inflation and high interest rates that have reduced the purchasing power of families. So that, Knowing what debt is, how much you can borrow and how to calculate it is essential when making financial decisions.
The debt capacity of a person or family is the amount of debt they can take on. A figure that will depend on the economic situation of each person, taking into account the income and expenses to be faced each month. Knowing these two factors in detail is essential to be able to meet debts and establish strategies that help reduce non-essential expenses.
In this way, the most important thing when it comes to acquiring financing without going through financial difficulties later is not to spend beyond our means. Something that applies both to not disbursing more capital than we enter, and to allocating a part of our income to savings, essential to face problems of economic solvency. That said, from some institutions they specify the figure that we must take into account when borrowing.
35% rule
That is why national organizations such as the Bank of Spain (BdE) recommend applying the 35% debt rule to know how much it is advisable to save and how much to spend. What is this rule about? Well, basically, the BdE explains that the borrowing limit, the result of subtracting the monthly fixed expenses to the total income received per month, must not be greater than 35% of the net capital.
In this sense, it is necessary to take into account What are the essential expenses that we cannot give up every month and where can we cut them to generate a cushion? and cover ourselves against possible unforeseen events. That is, spending and saving. Then there is the specific amount of indebtedness that we are willing to reach, which should not be more than is necessary for the specific matter that we want to finance.
Taking these three blocks into account, the 35% indebtedness rule can be applied. According to the strategy, the maximum amount that a person should spend on financing should not exceed this barrier. Normally, the debts of a person or family are paid in monthly installments to the financial entity that has lent the money and the borrowing capacity is the limit of debts that can be supported without risk of defaulting.
Obviously, the fact that the recommended limit is 35% does not imply that it always has to be the amount owed. Although indebtedness in itself is neither good nor bad, the less debt we are obliged to pay monthly, the better financial health we will have and the greater part of the income we can allocate to leisure, travel or savings, among other things.
Essential expenses and savings
If the recommended limit for financing should not exceed 35%, it is advisable that the amount allocated to monthly expenses does not exceed 50% of our income. Something that usually goes to cover basic needs such as food, transportation, housing, children (clothes, school, etc.) and other expenses such as leisure, sports or clothing. At this point it will depend a lot on the personal situation of each one, the place of residence or the economic environment.
Thus, the last variable in the equation is savings. By logic, here it is advisable that, once the essential expenses are covered, 15% of the income is saved and accumulated. It is a factor just as important as the previous ones, since we must have a long-term mentality in our finances, for future disbursements that we want to make or unforeseen events that may arise without having liquidity problems.
With these three factors, the borrowing capacity can now be calculated. If you are in the process of requesting financing, financial institutions will know through their automatic systems if you are suitable or not to request a loan with your current financial situation.
However, before accessing these agencies, you can calculate your borrowing capacity yourself subtracting the fixed expenses from the monthly income to later multiply the result obtained by 0.35. Thus, for example, with a salary of 1,500 euros per month and fixed expenses of 700 euros, the monthly debt that you could pay without exceeding the recommended limit would be 280 euros.
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