You ask a lender how much you can borrow and get back a number that feels oddly specific, and often lower than you expected. That figure comes from a fairly mechanical sum: your income, minus what you already owe, minus what you spend to live, all run through a scenario that assumes things get a little harder than they are today. Understanding that sum is the fastest way to stop being surprised by it.
What a lender counts as income
Income is treated differently depending on its type, and this is where people often overestimate their own number. A stable base salary is counted close to its full value. Other income is discounted or scrutinised, because a lender is trying to work out what you can reliably count on for the life of the loan, rather than what you earned in a single good year.
ASIC Moneysmart's guidance on borrowing power sets out how this plays out. Overtime, bonuses and commissions are usually only partly counted, and generally only once there is a track record of them recurring rather than showing up as a single strong result. Casual and part-time income is assessed against a history of hours worked, since lenders are looking for a consistent pattern. Self-employed income draws the closest scrutiny of all: lenders typically average earnings across recent tax years rather than relying on the most recent one alone, so a strong current year does not automatically lift what you can borrow if the years before it were leaner.
The theme running through all of this is simple: the more predictable and provable the income, the more of it counts.
What counts against you
Every dollar you already owe, or could plausibly owe, reduces the amount you can be lent. The part that catches people out is the word "could". ASIC Moneysmart's guidance on borrowing power explains that lenders assess the maximum exposure a facility allows, rather than only what you happen to be spending against it right now.
The clearest example is a credit card. Under this approach, the full limit on your card counts as a commitment, regardless of the balance you actually carry. A card with a large limit that you pay off in full every month still counts against you at its limit, because the whole amount could be drawn down tomorrow. The practical implication is direct: reducing a credit limit you don't need, or closing a card you don't use, can move your borrowing power more than a similarly sized change to your income.
The same logic extends further. ASIC Moneysmart notes that HECS or HELP debt reduces disposable income during the assessment, even though it carries no fixed repayment date and sits outside the usual bank loan. A buy-now-pay-later arrangement is treated as a recurring commitment in much the same way. Personal loans, car finance and any existing home loan all sit in the same column. The sum is straightforward: more standing commitments, less borrowing power.
Living expenses and the benchmark
After income and commitments, a lender needs to know what it actually costs you to live: groceries, utilities, insurance, transport, childcare, the ordinary running costs of a household. You report this yourself, based on your real spending.
That declared figure is then checked against an independent yardstick. APRA's prudential guidance on serviceability expects lenders to test declared expenses against a benchmark, so that an unrealistically thrifty budget can't be used to inflate a loan. In practice, a lender uses whichever number is higher: what you say you spend, or the benchmark figure for a household like yours. Where the declared figure is too low, the benchmark quietly does the work instead.
Why two lenders give two answers
This is the frustrating part: you can apply to two lenders with the same payslips and the same debts and be offered two different amounts. That gap reflects genuine differences in how each lender applies the rules, all within the same set of prudential expectations APRA sets for the industry.
Within that shared framework, individual lenders still set their own policy. ASIC Moneysmart's guidance on borrowing power points out that different lenders can reach different figures from the same information, which is one reason it is worth comparing more than one before you commit to an application. Treat a borrowing-power figure as one lender's assessment under its own policy, rather than the final word on your capacity.
How to lift your borrowing power
Before you apply, look at the levers you actually control. Reduce or cancel credit limits you aren't using, since it is the limit that counts toward the assessment, regardless of the balance sitting against it. Pay down or close small personal loans and buy-now-pay-later accounts rather than leaving them open. If your income includes overtime, bonuses or casual hours, keep a clean paper trail that shows consistency over time, since that is what turns a discounted figure into something closer to full value. Declare your living expenses honestly and in full, since an unrealistic budget will be overridden by the benchmark anyway.
The useful work is changing how a lender reads your application: lower unused credit limits, fewer standing commitments, cleaner income records and honest living expenses.