How Much Can I Borrow? Affordability Explained (UK)

Just because a lender offers you £20,000 doesn’t mean you can afford to borrow it. Understanding how much you can realistically borrow—without overstretching your finances—is critical to avoiding debt problems.

This guide explains UK affordability rules, how lenders assess borrowing capacity, and how to calculate what you can safely afford.

How lenders decide how much you can borrow

UK lenders assess your affordability using several factors:

1. Income

Your gross annual income (before tax) is the starting point. Lenders typically use income multiples to set maximum loan amounts.

2. Existing debt commitments

Monthly payments for credit cards, loans, mortgages, car finance, etc., reduce how much you can borrow.

3. Credit score

A higher credit score qualifies you for larger loans at better rates. A poor score limits your options.

4. Employment status

Permanent employment is viewed more favourably than self-employment, contract work, or zero-hours contracts.

5. Expenses and dependents

Lenders assess your living costs (rent, bills, childcare, etc.) to ensure you have enough income left over for loan repayments.

Income multiples: the basic rule

Most UK lenders use income multiples to set maximum loan amounts for personal loans.

Typical multiples:

• Personal loans: 1-3x annual income
• Mortgages: 4-5x annual income
• Secured loans: Up to 75-85% of asset value

Example:

Your gross annual income: £30,000

Maximum personal loan (3x income): £90,000 (but this assumes no other debt and excellent credit)

In practice, lenders will offer far less once they factor in your existing commitments.

Debt-to-income ratio (DTI)

Your debt-to-income ratio is the percentage of your monthly income that goes toward debt payments.

Formula:

DTI = (Total monthly debt payments / Gross monthly income) × 100

Example:

• Gross monthly income: £2,500
• Credit card payment: £150
• Car finance: £250
• Personal loan payment: £200
• Total debt payments: £600

DTI = (£600 / £2,500) × 100 = 24%

UK affordability thresholds:

DTI	Affordability	Lender view
Below 30%	Comfortable	Easily affordable, best rates available
30-40%	Manageable	Acceptable, standard rates
40-50%	Tight	Risky, limited options, higher rates
Above 50%	Overstretched	Likely declined or predatory rates

Aim to keep your DTI below 30% for financial stability. Above 40%, you’re at risk if income drops or expenses rise.

How to calculate what you can afford

Step 1: Calculate your monthly take-home income

Gross income: £30,000/year = £2,500/month

After tax (approx 20%): £2,000/month

Step 2: List your essential expenses

• Rent/mortgage: £800
• Bills (utilities, council tax, etc.): £200
• Groceries: £250
• Transport: £150
• Childcare: £0
• Other essentials: £100
• Total: £1,500

Step 3: List your existing debt payments

• Credit card minimum: £80
• Car finance: £220
• Total: £300

Step 4: Calculate available income

£2,000 (take-home) - £1,500 (essentials) - £300 (debt) = £200/month available

Step 5: Apply the 30% rule

Safe maximum total debt payment: £2,000 × 30% = £600/month

You already pay £300 in debt, so you can afford a maximum £300/month on a new loan.

Step 6: Calculate maximum borrowing

£300/month over 36 months at 8% APR = £9,600 maximum loan

Calculate your own affordability based on your income and budget.

What lenders check when assessing affordability

Credit report

Your credit score and history show whether you’ve managed debt responsibly. Missed payments, defaults, or CCJs limit borrowing.

Bank statements

Some lenders review 3 months of bank statements to verify income and check spending patterns.

Proof of income

Payslips (employed) or tax returns (self-employed) confirm your earnings.

Existing commitments

Lenders check your credit report for all outstanding debts, even if you didn’t mention them.

Living costs

Some lenders use standard figures (e.g., £300/month for a single person, £500 for a couple). Others ask for detailed expense breakdowns.

Common affordability mistakes

1. Borrowing at your maximum limit

If a lender approves you for £15,000 but your budget only allows £250/month, borrow less. Just because you’re approved doesn’t mean you should max out.

2. Forgetting about rate rises (variable loans)

If you choose a variable-rate loan, ensure you can afford a 2-3% rate increase. Fixed rates are safer for tight budgets.

3. Ignoring annual costs

Car insurance, MOT, Christmas, holidays—irregular expenses add up. Budget for these or you’ll struggle when they hit.

4. Not leaving a buffer

Life is unpredictable. Build in a £100-£200 cushion so an unexpected cost doesn’t derail your finances.

How to increase how much you can borrow

1. Improve your credit score

A better credit score qualifies you for higher loan amounts and lower rates.

How to improve:

• Pay all bills on time for 6+ months
• Register to vote
• Reduce credit utilisation (use less than 30% of available credit)
• Fix errors on your credit report
• Avoid applying for multiple loans at once

Check your credit for free with ClearScore, Experian, or Credit Karma.

2. Pay off existing debt

Reducing your monthly debt payments lowers your DTI and frees up borrowing capacity.

Example:

• Current debt payments: £400/month
• Pay off a £2,000 credit card (£100/month payment)
• New debt payments: £300/month
• New borrowing capacity: £100/month = £3,000+ extra loan potential

Compare debt consolidation options to simplify payments and reduce total interest.

3. Increase your income

Higher income = higher affordability.

Options:

• Negotiate a raise
• Take on overtime or extra shifts
• Start a side hustle
• Add a partner’s income (joint application)

4. Choose a longer loan term

Longer terms reduce monthly payments, allowing you to borrow more. But you’ll pay significantly more interest.

Example: £10,000 at 8% APR

• 24 months: £452/month (£851 interest)
• 48 months: £244/month (£1,712 interest)

Longer terms should only be used if necessary—always choose the shortest term you can afford.

Responsible borrowing checklist

Before applying for a loan, ask yourself:

• Can I afford the monthly payment comfortably?
• Would I still afford it if my income dropped by 10%?
• Have I compared at least 3 lenders?
• Is my DTI below 30% (or at least below 40%)?
• Do I have an emergency fund (at least £500)?
• Am I borrowing for something essential or worthwhile?
• Could I save up for this instead of borrowing?

If you answered “no” to any of these, reconsider how much you’re borrowing—or whether you should borrow at all.

What if you can’t borrow enough?

If lenders won’t approve the amount you need, consider:

1. Save up the shortfall

If you need £8,000 but can only borrow £6,000, save £2,000 first. This reduces interest costs and makes the loan more affordable.

2. Reduce the expense

Can you buy a cheaper car, do a smaller renovation, or find an alternative?

3. Improve your credit and reapply

Wait 6 months while improving your credit score, then reapply for better terms.

4. Get a guarantor

A guarantor (someone who agrees to pay if you can’t) can help you qualify for larger loans or better rates. Only consider this if you’re confident you can repay—don’t risk someone else’s finances.

Put it into practice

Knowing how much you can borrow—and how much you should borrow—prevents financial stress and keeps you in control.

Before borrowing:

• Calculate what monthly payment you can afford
• Compare lenders to find the best rate for your situation
• Check your credit score and fix any issues first

For more practical finance guides, explore our guides.