Repayment Capacity

Repayment capacity is your ability to meet your financial obligations, especially debt payments. Assessing it well helps you avoid over-indebtedness and maintain good financial health.

Factors to consider

• Monthly income: all the money you earn each month (salary, bonuses, and other income).
• Fixed expenses: the ones you pay without fail, like rent, insurance, and utilities.
• Variable expenses: the ones that change, like food and entertainment.
• Existing debts: the payments you're already committed to.

The 36% rule

A common guideline is that your total debt payments should not exceed 36% of your monthly income. Above that threshold, your budget becomes very tight and any surprise can destabilize it.

How to assess before borrowing

Before taking on new debt, calculate how it will affect your budget: subtract your current expenses and payments from your income and check whether the new payment fits comfortably. If the margin is narrow, it's better to wait or seek a smaller amount.

Borrowing within your repayment capacity is the difference between credit propelling you forward or holding you back.