Calculate the credit capacity or financing capacity is a legal requirement for banks. This measure makes it possible to avoid over-indebtedness.
By law, a consumer can borrow only if he is able to repay his credit. And that without touching the elusive portion of his income.1
The elusive portion of a borrower's income corresponds to his basic financial needs (the subsistence minimum).
The calculation of credit capacity consists in subtracting the borrower's monthly expenses from his total income, taking into account his basic financial needs (the subsistence minimum).
This makes it possible to determine how much money the borrower has left each month after paying his basic expenses, to repay his credit.
1Art. 93, Federal Debt Collection and Bankruptcy Act
Summary
The bank must establish a budget that meets the requirements of the Consumer Credit Act (LCC) art.28 before granting financing.
After receiving the request for private credit, the bank analyzes all the borrower's income and expenses.
Some main elements that are taken into account:
- Family situation
- Professional situation
- Existing debts
The objective of this phase is to accurately determine theThe monthly budget surplus according to the legal requirements of the LCC.
It is one of the most important steps in a credit report.
It is on this available surplus that borrowing capacity will be estimated. By law, this excess must allow the borrower to repay the loan over a period of 36 months, including interest.
So the financing capacity corresponds to approximately 30x the value of the available surplus.
Often, the calculation of credit capacity contains errors.
It is therefore important for borrowers to fully understand this calculation to verify the estimate made by the bank.
This calculation is documented in each credit agreement. You have access to it and should ask questions if the elements of the calculation are not clear.
A calculation that is too approximate has 2 main risks.
- Granting too much credit can unbalance the borrower's budget and weaken his financial situation.
In this case, the bank may be held liable and the contract may be cancelled by the court.
The bank could then be forced to renounce the repayment of part or all of the credit.
- The unjustified refusal of the credit application with the registration of this refusal at the central credit center (ZEK) or insufficient financing.
Outlining the credit capacity calculation is part of the advice that borrowers can expect from their bank or broker, but it is often overlooked.
The income used for the assessment of credit capacity appears on a line in the budget calculation.
Banks generally require at least CHF 3,000 in monthly income to process a credit application.
It is an overall value that includes all the revenues that can be taken into account to estimate financing capacity.
To successfully apply for financing it is useful to know what income is accepted by banks.
The assessment of charges is governed by the law on lawsuits and bankruptcies, but it differs between lending institutions. The budget established by the bank will take into account the following elements:
The monthly base amount
It's about essential expenses such as food, clothing, personal and medical care, home maintenance, home maintenance, private insurance, cultural activities, as well as energy-related costs (lighting, electricity, cooking gas, etc.).
These expenses are essential in the debtor's monthly budget.
The amounts vary according to the debtor's situation, and can be adjusted in case of shared accommodation or living in a community reducing costs, depending on the bank.
- CHF 1'200 For a person living alone
- CHF 1'350 in the case of a single-parent household
- CHF 1,700 for a married couple or in a registered partnership
Child maintenance costs according to age
- CHF 400.- up to 10 years
- CHF 600.- From 10 years
Rent, or mortgage interest and charges
This is the actual cost of housing, including expenses, for an accommodation or a room. In shared accommodation, this cost can be shared on a pro rata basis.
For homeowners with mortgages, the law takes into account mortgage interest (without amortization), public taxes and average maintenance costs.
Health insurance (LAMal)
This is a significant budget burden that increases every year.
Only the mandatory part of health insurance, basic insurance, will be counted. Any cantonal subsidies can be deducted.
Expenses essential to the exercise of a profession
These expenses are classified into 4 categories.
We will detail them below as well as their impact on the budget.
Category 1: Travel expenses areRe the backHome and workplace
They represent the main item of business expenses. By default, budgets will be established on the basis of fixed travel expenses (around CHF 200.-) but which varies from bank to bank.
However, there are several cost variants depending on the means of transport used:
- CHF 0.- On foot
- CHF 15.- By bike
- CHF 30.- By scooter or moped
- CHF 55.- On a motorcycle
- CHF 200.- by car. The concept of strict necessity was introduced by the regulator to check whether the use of the car is mandatory due to a disability or the absence of a public transport solution.
In case of strict necessity, the mileage cost of using the vehicle will be retained with a significant impact on borrowing capacity. Otherwise, the fixed cost will be retained.
Category 2: The increased dietary needs in the case of work considered to be arduous or at night (5.5 CHF per day)
Category 3: The expenses for meals taken away from home (from 9 CHF to 11 CHF per meal).
Category 4: Specific expenses forclothing care (up to CHF 50.- per month).
Monthly financial commitments communicated to the information center (ZEK/IKO).
We are talking here about current loans, leasing or credit cards.
This is why lending institutions often require Regroup credits existing under new funding.
The repurchase of these financial commitments can thus free the budget from financial burdens.
The amount of tax due
This is calculated according to the withholding tax schedule in the canton of residence of the borrower.
Maintenance payments due under a judgment
These are pensions decided as part of a separation or divorce decree.
Other regular expenses
- Expenses for external childcare
- Financial commitments excluding ZEK (employer loan for example)
- Sending money abroad on a regular basis
The example below shows how to calculate the credit capacity of a single person with an income of CHF 4,800.- per month over 13 months and living in Geneva.
This person goes to work by motorbike and pays basic health insurance of CHF 450.-.
His motorcycle is financed by a lease with a monthly payment of CHF 340.-.
The calculation gives a monthly budget surplus of CHF 955.-, which should make it possible to repay a loan over a period of 36 months interests included.
It therefore makes it possible to consider an amount of approximately 30x this amount, i.e. private credit capacity of CHF 28,600.
The calculation of a household's credit capacity involves the assessment of all the couple's income and expenses. However, there is no obligation to justify the spouse's income.
In the event that the spouse's income is not provided, this will nevertheless have the effect of reducing the amount of credit offered because the income base will then also be reduced.
Credit institutions are subject to the same regulatory framework but do not have the same approaches in terms of risk management.
Banks may in fact decide to limit the amount of credit offered depending on the administrative or professional situation of customers, such as B license holders, The border workers, the self-employed.
They can also limit the maximum amount of all their loans to CHF 80,000 (Bob Money), CHF 100,000 (Migros Bank), or adopt a more restrictive approach to calculating credit capacity to reduce reputational risks.
Lending institutions or your broker must systematically check your budget. with you in order to establish a budget in accordance with regulatory requirements.
The Credial team is at your disposal for any questions concerning the calculation of your private credit capacity.
Do not hesitate to use our Credit calculator to estimate your financing capacity.
