Understanding Borrowing Capacity
Borrowing capacity represents the maximum amount you can borrow from a bank based on your financial situation. It is calculated from your income, expenses and the authorized debt ratio.
How is borrowing capacity calculated?
The calculation is based on three key steps:
- • Max monthly = (Income - Charges) × Debt ratio
- • Capacity = Monthly × [(1+r)ⁿ - 1] / [r(1+r)ⁿ]
Frequently Asked Questions
Your borrowing capacity is calculated in two steps: 1) Determine your maximum monthly payment = (Net income - Charges) × 33%. 2) Calculate the capital you can borrow with this payment over the desired duration.
The debt ratio is the percentage of your income dedicated to repaying your loans. French banks generally set a maximum of 33% to ensure you maintain sufficient remaining income.
Monthly charges include all your current loans (auto, consumer), your current rent if you're a tenant, and all other monthly financial obligations. Banks deduct them from your income to calculate your repayment capacity.
Since 2022, French banks can grant up to 20% of their loans with a 35% debt ratio (instead of 33%), provided you have high remaining income. High earners or stable situations can sometimes negotiate this flexibility.