Borrowing power is one of the most misunderstood parts of the lending process. Many people assume that it’s tied closely to their credit score or to what an online calculator says they can afford.
In reality, borrowing power is a lender’s view of risk. It reflects how much a lender is prepared to advance after assessing income stability, living expenses, existing debts and how you have managed credit over time.
This guide explains how to increase your borrowing power in Australia, with a clear focus on how loans and credit behaviour influence lender assessments.
Key takeaways:
- Borrowing power is based on lender risk and affordability assessments, not just your credit score or online calculators.
- Income stability, living expenses and existing debts all play a direct role in how much you can borrow.
- Credit cards and personal loans affect borrowing power differently, with credit limits and fixed repayments heavily influencing serviceability.
- Paying down or restructuring debt can increase borrowing power, but timing and cash buffers matter just as much as balances.
- Increasing borrowing power works best when changes are planned early and align with how lenders assess risk in practice.
What is borrowing power, and how do Australian lenders calculate it?
In a nutshell, borrowing power is the maximum amount a lender is willing to advance based on its assessment of risk and affordability. It’s not a guaranteed amount, and it’s not determined by a single factor. In Australia, lenders calculate it by assessing your ability to service repayments both now and under stressed conditions.
Most lenders follow APRA guidance when assessing serviceability. APRA requires authorised deposit-taking institutions to apply a serviceability buffer, meaning your loan is assessed at an interest rate higher than the actual rate you will pay. This buffer is designed to account for future rate rises and changes in circumstances.
This is why borrowing power can decrease even when interest rates are stable. If buffers change, or if your expenses or debts increase, the amount you can borrow may fall despite no change in income.
How does your income affect borrowing power?
Income is a starting point, not the final answer. Besides the headline figure, lenders assess the reliability and sustainability of your income.
Base salary is typically treated as the most stable form of income. Variable income, like bonuses, commissions, overtime or secondary employment, may be included only partially or excluded altogether unless there’s a clear and consistent history. Many lenders require evidence over a minimum period before recognising this income, often shown through payslips and tax returns.
Employment stability is another key factor. Lenders generally prefer ongoing employment over casual or short-term arrangements, even when the total income is similar. This is because stable income reduces the risk of repayment disruption.
Do living expenses influence how much you can borrow?
Living expenses have a direct and often underestimated impact on borrowing power. Australian lenders use a mix of borrower-declared expenses and statistical benchmarks such as the Household Expenditure Measure. If your declared spending is below the benchmark, many lenders default to the benchmark instead. If your declared spending is higher, the higher figure is usually used.
Discretionary spending can matter even for higher-income borrowers. Regular outgoings such as subscriptions, childcare, private school fees and ongoing lifestyle costs reduce surplus income available for loan repayments. This is why two applicants with similar incomes can have very different borrowing power outcomes.
How do existing debts reduce borrowing power?
Existing debts reduce borrowing power because lenders factor in ongoing repayment commitments when assessing affordability.
Credit cards
Credit cards are a common pressure point when lenders assess borrowing power. These debts are assessed based on the approved limit rather than the outstanding balance, because that limit represents potential future debt. Even if you clear the balance every month, the full limit is still treated as a liability in serviceability calculations.
From a lender’s perspective, an unused $20,000 limit can become a $20,000 balance overnight, and that introduces uncertainty into the assessment. Therefore, reducing or closing credit card limits you don’t need is one of the most effective ways to increase borrowing power. It often delivers a larger improvement than simply paying down the balance before you apply.
Personal loans
Personal loans affect borrowing power in two ways. First, the repayment reduces monthly surplus income. Second, the loan appears on your credit file and forms part of your overall credit profile.
Under Australia’s comprehensive credit reporting system, lenders can see repayment history on personal loans, not just whether you defaulted. Consistent, on-time repayments are a positive signal, while missed payments have a lasting negative effect.
Notably, a personal loan can enhance borrowing power by replacing higher-risk revolving debt and improving repayment consistency. It can restrict borrowing power when it adds a new repayment without reducing other liabilities. This is why lenders look at the structure and purpose of the loan, not just its existence.
HECS and HELP debts
HECS and HELP debts are government-backed student loans used to fund higher education, with repayments triggered once your income reaches a set threshold. Even though repayments are income-contingent and collected through the tax system, lenders factor these obligations into borrowing power because they reduce your net income, thus affecting how much surplus cash is available to service a new loan.
While HECS and HELP debts do not appear on your credit report in the same way as personal loans or credit cards, the compulsory repayments are treated as an ongoing commitment in serviceability calculations. This means higher balances can lower borrowing power, particularly for borrowers early in their careers or with incomes near the repayment threshold.
How to increase your borrowing power in Australia
Once you understand how lenders assess risk, the levers you can pull become clearer. At the core, increasing borrowing power is less about tricks and more about making changes that lenders actually recognise in serviceability and risk models.
1. Reduce or right-size revolving credit limits
One of the fastest ways on how to increase borrowing power is to reduce unused credit card limits. As discussed, lenders assess credit cards based on the approved limit, as it represents potential future debt. Lowering unnecessary limits or closing dormant cards can materially improve assessed surplus income.
2. Pay down or restructure personal loan debt strategically
Personal loans reduce borrowing power through their fixed repayments. Reducing or clearing a personal loan can improve serviceability, but only when it doesn’t weaken your overall position.
Timing matters. Paying out a loan well ahead of a major application allows your profile to stabilise and avoids questions around depleted savings. In some cases, consolidating higher-risk revolving debt into a structured personal loan can also help, provided total repayments fall and old facilities are properly closed.
3. Stabilise and clearly evidence your income
Lenders value income they can rely on. If you receive variable income, consistency and documentation are critical. Demonstrating a stable pattern over time can make the difference between partial inclusion and full recognition. Avoid major employment changes close to applying unless they clearly improve stability. Even when income increases, recent changes can reduce borrowing power if they introduce uncertainty.
4. Review discretionary expenses with lender benchmarks in mind
You don’t need to strip your lifestyle back to basics, but lenders will compare your declared expenses against benchmarks. Cleaning up subscriptions, irregular spending or duplicated costs in the months before applying can improve outcomes, especially when changes are sustained and visible in transaction history.
5. Avoid new credit applications before assessment
Each credit application leaves a footprint. Multiple recent enquiries can signal credit-seeking behaviour and financial pressure, even when income is high. If your goal is to increase borrowing power, it is often better to pause non-essential applications and let your profile settle.
6. Build and preserve a genuine cash buffer
Savings do more than reduce the amount you need to borrow. A visible cash buffer improves lender confidence that you can manage unexpected expenses without falling behind. Borrowing power improves most when lower repayments and adequate liquidity exist together.
Taken as a whole, these steps work because they align with how lenders assess affordability and risk in practice. They’re by no means quick fixes, but changes that consistently improve outcomes for those who plan ahead and structure their finances with intent.
Does having a guarantor increase borrowing power?
Sometimes, but not in the way many people assume.
A guarantor arrangement usually helps by improving the security position, such as reducing the lender’s exposure at a higher loan-to-value ratio. That can help some borrowers access a loan with a smaller deposit or avoid lenders’ mortgage insurance in certain structures. It does not automatically fix serviceability. If your income and expenses do not support the repayments, a guarantor rarely solves the core problem, because lenders still assess whether you can afford the loan.
Moreover, guarantor loans also involve real obligations. The guarantor is taking on risk, and the lender will also assess the guarantor’s capacity and existing commitments. If you are considering this route, treat it as a serious financial arrangement, not a shortcut.
How to increase borrowing power, final thoughts
Learning how to increase your borrowing power is ultimately about presenting a financial position that lenders view as stable, sustainable and low risk. Income matters, but so does how you manage expenses, structure existing debts and demonstrate consistent repayment behaviour over time. Small changes, when made early and maintained, often have a greater impact than last-minute adjustments.
Personal loans can play a role in this process when they are used deliberately. A well-structured loan can help reduce reliance on revolving credit and create clearer, more predictable commitments.
Now Finance offers personal loans designed to make these decisions clearer. With no ongoing or establishment fees and a structure where the comparison rate matches the interest rate, it’s easier to understand the true cost of borrowing from the outset. We’re an independent lender, so we take a more personal approach to help you understand how a loan fits into your broader goals.If you’re considering how a personal loan could support your borrowing strategy, you can get your rate now to see what’s available, or contact us for more information.
