loan affordability

Loan Affordability
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Abstract
Loan affordability is determined by various factors, which the lending institutions use to access the eligibility of an individual to receive a loan. The main yardstick in determining individual loan affordability is their level of income, expenses, outstanding loans, and the debt ratio. Seeking a good credit score provides a higher probability for one to receive a loan in future. Notably, when seeking a loan approval, one must calculate their front-end ratio, which includes their principal, interest, taxes and insurance PITI. This ratio should not exceed 28 percent in case one requires a loan. Also, one must calculate their back-end ratio that involves their outstanding loans and debts. Any debt-to-income ratio that exceeds 50 percent affects one’s affordability to a loan from any institution. Lenders may be lenient in considering the front-end ratio but are more interested in the back-end ratio, which determines the total loans and debt an individual possess and their ability to repay the loan they intend to take. As such, for one to afford a loan, they must have a significant low back-end ratio.
Keywords: affordability, front-end ratio, back-end ratio, lenders
Loan Affordability
Taking a loan to buy a car can be complicated, and various factors must be taken into consideration to help predict the current and future financial situation. In the process of getting a loan, lenders determine the af…