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A Guide To Understanding Affordability Score For Smart Savings
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  • January 24, 2024

A Guide To Understanding Affordability Score For Smart Savings

Do you agree that affordability can help you stand a chance to get loan approval? You might have a different opinion, given your experience with mainstream lenders. This factor has become an integral part of alternative ways of lending.

Like credit scores, this aspect is also considered to assess the risk factor. These two are different but different lenders can weigh them differently to evaluate your financial potential. It might even happen that your credit scores are great, while affordability scores are not satisfying.

This facet reveals your original financial standing and plays a critical role at the time of applying for bad credit loans in Dublin. This is because your credit scores are not perfect here, and you can still avail of this loan facility. It can only be possible if your affordability stands out.

While credit scores relate to your credit history as documented in your credit report, affordability concerns what is available in your bank account. Your everyday spending and earnings are crucial and are the decisive elements. On the flip side, your past financial transactions matter more in the case of credit history.

Direct lenders feel optimistic about your financial capacity by looking at your affordability. It helps them assess the chances of getting loans and interest back on time. Dig deeper through this blog to understand these scores, which contradict various lending theories.

Decoding affordability scores to help you achieve your goals

The evaluation of these scores is only possible through your current bank accounts. No need to worry about the safety of your sensitive bank information. Moreover, you can unlink your account at any time if you do not feel like disclosing the status of your present financial transactions.

You must confirm your affordability if you want loan assistance from direct lenders. You may rest assured that this exercise will not steal your bank information but rather your account details that show bills and payments, active transactions and other features of the account.

This assessment will not enquire about your passwords and login details. Moreover, the lender is allowed to conduct the evaluation only when you authenticate.

1. Factors that influence your affordability scores

As mentioned above, your bank account will be used to validate your affordability. The main concern of the lender is to make sure that you have done decent transactions in the last six months. Therefore, your financial journey so far should establish on-time payments of debts, the amount of money you draw out every month and the amount that remains after covering all the monthly essential payouts.

Look at the factors that can make or break your affordability.

Income status: Figuring out your take-home salary and what remains from your earnings after tax deduction is crucial to paint a clear picture of your income. Your income stream might not be a critical aspect as you can earn from direct employment, self-employment, business or part-time income. Having a certain and valid source of earning is vital as it can elaborate on your affordability.

Possibility of surplus income: You might earn additional money from the investments you have made so far. Besides, you can have a surplus source of income via freelancing at the same time.

Overall household payouts: These outgoings combine all the bills, loans, childcare expenses, credit cards, insurance, water, gas, electricity, etc. In short, the different outlays that occur every month should be brought together.

Other outgoings: The above list shows the vital and usual payouts necessary for you to manage every month. Some expenses are there which occur occasionally, like for entertainment or leisure pastime purposes, vacations, subscriptions, gift purchase purposes, etc.

The major elements are income and expenses which help the lender determine if you have the capability to afford them. Besides, it lets them understand the potential amount you can save after attending to all the payouts. With this fair idea, they can assess the possibility of timely loan payments.

2.  Working out affordability scores

The lender’s perception of affordability scores might vary. However, their calculation will revolve around a few aspects that are inevitable in your financial condition. Therefore, if you are about to apply for a loan in Dublin online, you must understand how they are calculated.

Your debt-to-income ratio must be analysed to identify the proportion of debt you hold compared to your salary. If the ratio is more, it indicates you are struggling with debts. In this case, it becomes obvious that your earnings are less than the amount of debt you deal with.

Affordability score calculation is incomplete without validating credit utilisation. It shows if you have consumed all the credit that has been accessible to you. Now, it will be low if all of your credit cards have been maxed out, thereby establishing that you have exceeded the credit limit offered to you.

The disposable income of the borrower is critical as it can prove if loan payments will be affordable or not. Therefore, no complex calculation is involved here but a few evaluations have nothing to do with your credit scores.

3.  The outcome you have to face for low affordability scores

The lender will use the affordability scores to ascertain the chances of successful loan payments. They will most likely step back from offering you financial assistance. The reason is quite evident, and you cannot deny that.

However, some loan providers might have a different point of view. They might be willing to offer help, but maybe with a trivial amount. You might not even have to accept stricter repayment terms.

All this might be possible in the presence of a guarantor or collateral. These aspects will cover up your flaws and can assure the lender about your loan repayment. With a guarantor, you must produce a person who can take care of loan payments on your behalf. Besides, collateral will make up for the amount you fail to pay back.

The bottom line

You must know one thing: inflation, i.e., a rise in living costs, can have a direct impact on your affordability. Then, your financial condition might not seem healthy to take up risks like borrowing.

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