Loan Affordability Calculator

Loan affordability is usually expressed as a maximum loan amount that fits within a debt-to-income (DTI) ceiling — the percentage of gross or net monthly income that the lender (or the borrower) is willing to commit to total debt service. The calculation runs in two stages: first, work out how much of monthly income can go to debt servicing under the chosen DTI cap, after subtracting payments already committed to existing debts; then reverse the standard amortisation formula to find the largest loan amount that can be repaid by that monthly figure at the chosen rate and term.

How to use it

Enter monthly income, existing monthly debt payments, the maximum DTI percentage to test against, the loan term in years, and the annual interest rate. The calculator returns the maximum affordable loan, the monthly payment that produces it, the DTI ceiling and the existing debt for context, the total interest at that maximum, and the term. The currency selector at the top of the calculator changes formatting throughout — the math itself is currency-neutral.

Worked example

Picture a household with monthly income of 4,000, existing monthly debt payments of 400, a 36% DTI cap, a 5-year term, and an 8% annual rate (currency follows the selector). The DTI ceiling is 4,000 × 36% = 1,440. After existing debts of 400, the room for a new loan payment is 1,440 − 400 = 1,040 per month. Reverse-amortising 1,040 per month over 60 months at 8% APR gives a maximum loan of 51,291.17. Total repaid is 1,040 × 60 = 62,400, so total interest at that maximum loan is 62,400 − 51,291.17 = 11,108.83.

How the math works

Monthly available = (income × DTI cap) − existing debt payments. Maximum loan = monthly available × [(1 + r)ⁿ − 1] ÷ [r × (1 + r)ⁿ] where r is the monthly rate (annual ÷ 12 ÷ 100) and n is months. Total interest at the maximum loan = monthly available × n − maximum loan. The reverse-amortisation expression is just the standard fixed-rate amortisation formula solved for principal instead of payment; the formula box below reproduces it.

Where DTI ceilings come from

Lenders publish their DTI thresholds for unsecured personal lending; the figures vary by country, lender, and product type. As broad orientation seen across consumer-credit literature, conservative thresholds are commonly cited around 28-36%, mainstream lenders often go to 43%, and some products extend to 50%; specific cutoffs are set in lender underwriting policy. Borrowers using this tool for personal budgeting often choose a tighter DTI than a lender would apply, because the lender's ceiling is the threshold of refusal rather than a comfort target.

What the calculator doesn't capture

The model assumes a fixed rate, equal monthly payments, and that the lender's underwriting is determined entirely by DTI. In practice, lender approvals also consider credit history, employment stability, savings reserves, the loan purpose, and product-specific stress tests; the maximum the math allows is not the same as the maximum a lender will offer. The calculation also doesn't include arrangement fees, insurance products that lenders sometimes bundle, or the difference between gross and net income when DTI rules vary in which one they target. Treat the figure as the upper bound from the math and adjust downward for the factors not modelled.

Mathematical maximum versus comfortable budget

The output is the largest loan a given DTI cap will mathematically support; it is not a recommendation. Some borrowers find that the loan that fits the lender's DTI ceiling leaves the budget tight against unexpected expenses, so they size the new loan below the calculated maximum to leave a buffer. How much buffer is appropriate depends on income stability, existing savings, and the borrower's other commitments — this calculation answers the math question, not the comfort question.