If you want to obtain a financial product such as personal finance, mortgage or other finance, you must figure out the amount of funding that is appropriate based on your financial needs and commitments. Therefore, you must apply for finance after carefully considering your ability to repay this amount in the future.
Below, we have outlined the key steps to calculate the amount of funding that corresponds to one’s credit status as an applicant.
STEP 1: Understand why you need the finance
Finance should be obtained to achieve an objective that helps to improve the financial situation of the applicant or strengthen an existing business of the applicant. It would be ideal to use bank finance for the purpose of owning a property, undertaking an expansion of a project or acquiring assets, and not to meet daily living expenses.
Make sure not to inflate the amount when applying for finance and only stick to the required amount, even if you qualify for a larger finance amount.
STEP 2: Calculate your total monthly income
In accordance with the guidelines set out by the Saudi Central Bank (SAMA), your total monthly income is calculated based on your total monthly salary plus half of the average of any other financial income received periodically, such as allowances, bonuses or investment returns or any other income.
This income is subject to verification by the finance provider, which is done by vetting official documents or bank statements for the previous two years.
It is worth mentioning here that the government subsidy contract with the client, which is issued by the Ministry of Housing or the Real Estate Development Fund, falls within the total income that is taken into account.
Other government subsidies such as the citizen’s account program are excluded from the income calculation.
STEP 3: Calculate your monthly financial liabilities
Next, you must figure out the total amount that you require in order to meet all your financial obligations that fall due each month. This includes all your monthly finance repayments as well as personal financial expenses and liabilities, such as the basic monthly living expenses and employer repayment loans. Make sure that the calculations are made in accordance to your credit report.
It is worth noting that the financial obligation linked to credit cards is calculated on the basis of the minimum monthly payment for each card separately. The monthly credit commitment for finance is calculated on the basis of the monthly average of all installments if they are not of equal amounts.
STEP 4: Determine the proportion of monthly obligations
It is very important for you to be aware of the ratio of your monthly liabilities vis-à-vis your monthly income according to the principles of responsible financing. This ratio or percentage measures your average monthly credit obligations in relation to your total monthly income.
Clients are segmented according to the following monthly income brackets:
- SR 15,000 or less
The maximum monthly credit commitments for consumer credit are 33.33% of the total salary of the client and 25% for the pensioner. Monthly commitments should not exceed 45% of monthly income, excluding mortgage commitments, and this percentage increases to 55% for all monthly commitments. If however, government support payment for real estate financing is taken into account, then this percentage is 65%.
- More than SR 15,000 and less than SR 25,000
The monthly credit liabilities resulting from consumer finance should not exceed 33.33% of the total salary of the client and 25% of the salary for the pensioner. The total monthly obligations should not exceed 45% of monthly income, excluding monthly mortgage obligations. This ratio increases to 65% after taking into account all monthly obligations.
- More than 25,000 riyals per month
Monthly credit commitments resulting from consumer financing should not exceed 33.33% of the client’s total salary and 25% of the salary for pensioners.
The total credit liabilities resulting from financing are subject to the policies of the credit provider’s assessment of the customer’s ability to meet the monthly credit liabilities.
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