Income-expenditure calculation (credit check)

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The income-expenditure calculation is an essential part of the creditworthiness check of credit institutions when examining a loan application from private households .

General

In doing so, the sustainably achievable income is compared with the expenses ( seizure exemption limits ) and a “free income” (“seizeable income”) is determined. The debt service ( loan interest and repayment ) is only bearable by the borrower if it is lower than the free income. To do this, credit institutions determine the debt service coverage ratio in their credit analysis .

use

The income-expenditure calculation is used in particular in the private customer business for installment loans and mortgage lending .

In the area of financing of self-employed and business income and expense calculations are performed. However, since (future) incomes are uncertain, a credit check is preferable here.

The income-expenditure calculation does not apply to Lombard loans and other loans that are based solely on the value of the loan collateral .

Income and expenditure account

The income-expenditure calculation is as follows: 

Summe der nachhaltig erzielbaren Einnahmen
- Summe der Ausgaben
= Freies Einkommen
- Schuldendienst
= Freies Einkommen nach Abzug des Schuldendienstes

This free income must be higher than the intended debt service. The higher the free income after deducting debt servicing, the lower the probability of default in terms of credit risk .

However, it is difficult to determine the sustainable income and expenses of the borrower.

Sustainable income

The basis of the income-expenditure calculation is the information in the self- assessment , other credit documents and the proof of income . However, the income documented there is only included in the income-expenditure account by the bank insofar as it can be achieved in the long term (ie at least during the term of the loan). The individual banks apply different standards here. The following are often deducted as not sustainable:

Some banks also rate labor income as not sustainable if

Child benefit and social benefits are sometimes only paid for a limited period and may be classified as unsustainable if the loan runs longer than the corresponding benefits.

Borrower's expenses

While income can be proven, banks rely on customer information and their own experience when determining expenses. There is often the risk that credit customers (especially with installment loans) underestimate their own expenses and are willing to accept loan installments that are too high. To avoid such misjudgments, credit institutions require the borrower to prepare a private liquidity calculation .

Banks therefore usually proceed in such a way that large and stable expenditure items ( rent , insurance premiums ) are taken into account individually and the actual cost of living is covered with flat rates. In practice, these lump sums are based on social assistance rates (as a minimum amount) or are determined as a percentage of income.

Attachable income

According to the income-expenditure calculation, the attachable income can also be determined: 

Summe der nachhaltig erzielbaren Einnahmen
- Pfändungsfreigrenzen
= Pfändbares Einkommen

In the event of the loan being canceled, there is the option of seizing income in this amount by garnishing wages. Banks can secure payment of their net income beforehand by assigning wages and salaries . The higher the attachable income, the lower the probability of default for the loan.

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