Preparing financially
How lenders actually calculate what you can borrow
Income shading, the expense benchmark, why credit limits (not balances) count, and the serviceability buffer applied on top of all three.
- Variable income (overtime, bonuses, rental income) is commonly 'shaded' — discounted, not counted in full.
- Lenders compare your declared expenses against a standardised benchmark and use whichever is higher.
- Credit card and BNPL limits count toward your assessment, not just what you currently owe.
- The serviceability buffer is applied on top of all of the above, not instead of it.
Income: not every dollar counts the same
Lenders commonly apply "shading" — discounting a percentage of income types they consider less reliable, such as overtime, bonuses, casual shifts, or rental income from an investment property — rather than counting them in full. Base salary is typically counted at 100%; more variable income types are often shaded, sometimes substantially, and the exact discount varies by lender.
Expenses: the benchmark vs. your actual spending
Lenders are required to assess your actual declared expenses, but commonly compare them against a standardised expense benchmark — the Household Expenditure Measure (HEM), developed by the Melbourne Institute of Applied Economics — and use whichever figure is higher as a floor, meaning an unusually frugal household may still be assessed against a higher benchmark figure. This is a real reason two households with identical income can be assessed differently.
Debts: limits, not balances
For credit cards and similar revolving credit, lenders commonly assess serviceability against the credit limit, not your current balance — a $20,000 limit card you rarely use can still reduce your borrowing capacity as though it were close to fully drawn. Closing or reducing limits on cards you don't need before applying is a genuine, actionable step (see existing-debt guide).
The buffer, applied on top of all of this
After shading income, applying the expense benchmark, and counting debt limits, lenders then assess your ability to repay at a rate at least 3 percentage points above the loan's actual rate (Australian Prudential Regulation Authority, verified 29 Jul 2026) — see the safe-budget guide for what this buffer is actually for.
Practical checklist
Before estimating your own borrowing capacity
- List which parts of your income are base salary vs. variable (overtime, bonus, rental)
- Check the credit limit (not balance) on every card and BNPL account you hold
- Consider closing or reducing limits on cards you don't need before applying
- Treat any online borrowing-capacity estimate as a rough starting point, not a real assessment
Questions for a professional
- How is my variable income being treated in this assessment?
- What expense benchmark are you using, and how does it compare with my actual spending?
- Would reducing my credit card limits meaningfully change my borrowing capacity?
Official resources
Sources and methodology
- APRA maintains current macroprudential settings in uncertain environment — Australian Prudential Regulation Authority (retrieved 29 Jul 2026)
Figures on this page are drawn from Delora's local knowledge graph, refreshed from these primary sources and checked for changes on a regular schedule. If a figure here looks out of date, the official source above is always the authority — please let us know.