Budget Check & Debt Capacity
Terminology
A budget check is part of the creditworthiness check. It aims to protect borrowers from over-indebtedness in the course of taking out a loan. The debt-to-income ratio also plays a role in this process. Those who grant loans are obliged by law to carry out a budget check on the basis of the Swiss Consumer Credit Act (KKG).
Crowdlending platforms such as LEND also have to carry out a credit check and cannot make a loan offer if the debt capacity is too low in order to avoid over-indebtedness on the part of the borrower. However, we may be able to increase your financial leeway with credit card debt rescheduling or refinancing of existing loans at more favourable conditions.
Knowing one's own financial situation helps to make reliable decisions. For this reason, prospective borrowers should also carry out a budget check themselves before major expenses or taking out a loan.
In credit terminology, the household balance is the capital that is freely available to the potential borrower. It is used to calculate the debt capacity, which is the maximum amount that one can request to borrow without risking over-indebtedness.
1. Budget check according to the Consumer Credit Act
Lenders are obliged to check the creditworthiness of the applicant. According to the Consumer Credit Act, the applicant is considered creditworthy if he or she can repay the loan without having to claim the non-seizable part of the income. Consequently, the seizable income must be determined in order to be able to make statements about creditworthiness. This is done as part of the budget check.
1.1 How is the available household budget calculated?
To calculate the available household budget, your non-seizable expenses are deducted from your seizable income.
The income side:
The key factor here is the net income as shown in your payslip. Income that cannot be seized (e.g. AHV and IV pensions or social welfare benefits) cannot be included in the calculation of the budget. Allowances and other variable compensation must be taken into account correctly. Anyone who regularly receives night shift bonuses, for example, must not forget that these do not accrue during holidays.
Additional income sources and income of other contractors of the loan are also taken into account.
The expenditure side:
All items of the minimum subsistence level under debt enforcement law are used. This varies from canton to canton and is based on a basic amount plus supplements for e.g. rent, heating, travelling to work, taxes).
Existing loans, leasing or credit card liabilities must also be taken into account when calculating the household budget. This often means that loan top ups are only possible if existing loans are consolidated under a new loan. Better conditions reduce the monthly costs.
1.2 How is the debt capacity calculated?
For a loan application to be approved, the requested loan amount must not exceed the lender's balance multiplied by 36 (this is your debt capacity). In other words, one's disposable income must be sufficient to repay the loan in full including interest within 36 months (regardless of the actual term).
2. Personal budget check
Before taking out a loan or making a major purchase, consumers should know their monthly disposable income. A comparison of income and expenses quickly reveals which additional costs can be accepted without risk.
Income includes, for example:
Own net income
Net income of partner
Family and care allowances
Alimony
Other income (e.g. additional income, rent, etc.)
For example, the following should be taken into account for expenses
Housing costs rent (incl. heating and ancillary costs)
Housing costs for own home (mortgage interest, heating, water, insurance, etc.)
Costs for current loans
Electricity and gas
Telephone, internet, mobile phone, TV fees, cable fees
Clothing
Food and drink
Taxes (state, municipal, fire tax, etc.)
Insurance
Mobility costs (monthly tickets, petrol, toll sticker, vehicle tax, etc.)
Club memberships
Newspaper subscriptions
Alimony
Costs for pets
etc.
Subtracting all expenses from the available income results in the maximum available budget that can be spent in order to protect oneself from future financial bottlenecks.