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Borrowing Power Formula:
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The borrowing power formula calculates the maximum loan amount (principal) you can borrow based on your affordable monthly payments, interest rate, and loan term. It's based on the present value of an annuity formula.
The calculator uses the formula:
Where:
Explanation: The formula calculates the present value of a series of future payments (an annuity) to determine how much you can borrow while staying within your repayment capacity.
Details: Knowing your borrowing power helps you understand your loan eligibility, plan your finances, and avoid over-committing to repayments you can't afford.
Tips: Enter your comfortable monthly payment amount, the annual interest rate (as quoted by the bank), and your desired loan term in years. All values must be positive numbers.
Q1: What interest rate should I use?
A: Use the rate offered by CommBank for personal loans, which varies based on your credit profile. Check their website for current rates.
Q2: Does this include fees and charges?
A: This calculation doesn't include establishment fees or other charges. Your actual borrowing capacity may be slightly less when fees are considered.
Q3: What's a typical loan term for personal loans?
A: CommBank personal loans typically range from 1-7 years (12-84 months). Shorter terms mean higher payments but less interest overall.
Q4: How accurate is this calculator?
A: This provides an estimate. Your actual approved loan amount may differ based on credit assessment, income verification, and other factors.
Q5: Can I use this for other types of loans?
A: While the formula works for any installment loan, specific products (like home loans) may have different calculations and eligibility criteria.