How much can I afford to borrow? A simple budgeting method
You can afford to borrow the amount whose total repayment fits inside what is left of your take-home pay after essentials, existing debt and a safety buffer. Work that out before you apply, because the lender will carry out its own assessment and you should know your own numbers first. This guide gives you a four-step method, a worked example and a checklist.
Key takeaways
- Start from take-home pay, not gross salary, and subtract essentials and existing debt payments.
- What remains is your spare money, and only part of it should go to a new repayment.
- Leave a buffer for the month that goes wrong: a taxi fare increase, a school request or a medical bill.
- Compare the total repayable, not the amount borrowed, with your spare money.
- If the numbers do not fit, a smaller amount or another option is the safer answer.
How do you work out how much you can afford to borrow?
Use four steps, in this order. Take your monthly take-home income, subtract your essential spending, subtract the payments on debts you already have, and then set aside a buffer. What is left is the most you should consider committing to a new repayment.
Write the numbers on paper or in your phone. Use the affordability calculator on this page to try different amounts once you have your figures to hand.
The lender will run its own assessment, and under the National Credit Act it must do so before it grants credit. Your own budget is a different tool. It tells you what is comfortable, not only what is possible.
- Step 1: Write down your monthly take-home pay, the amount that actually lands in your account.
- Step 2: Subtract your essentials, the costs you must pay every month to keep life running.
- Step 3: Subtract your existing debt payments, such as store accounts, cards, vehicle finance and other loans.
- Step 4: Set aside a buffer, then compare what is left with the total repayable on the loan.
What counts as an essential expense?
Essentials are the costs you cannot skip without serious consequences. Be honest and complete here, because the most common mistake is leaving things out. The National Credit Regulator asks borrowers to give the correct amount for household expenses and not to reduce it in order to qualify for credit.
Include the irregular items too. A yearly licence renewal or school uniform, divided by twelve, belongs in your monthly figure.
- Rent or bond payment and levies
- Groceries and household supplies
- Electricity, prepaid units, water and gas
- Transport: taxi fares, petrol, e-hailing or train tickets
- School fees, transport and stationery
- Phone and data you need for work or study
- Medical aid or regular medicine
- Funeral cover, insurance and other policies you pay monthly
- Support you send to family members
What does the method look like with real numbers?
The figures below are an invented example for illustration only, not a quote from any lender. Thandi lives in Pretoria, takes home R14,500 a month and has two small store accounts.
After essentials and existing debt she has R1,600 left. She decides to keep a quarter of that as a buffer, which is R400, so the most she should commit to a new repayment is R1,200. That is a personal rule of thumb, not a legal limit.
If the total repayable on a loan includes about 18% in interest and fees, for illustration, then a loan of R1,000 would cost about R1,180 to repay. That fits inside her R1,200. A loan of R2,000 would cost about R2,360, which does not fit. The total repayable, not the amount borrowed, is the figure to compare.
| Line (illustration only) | Monthly amount |
|---|---|
| Take-home pay | R14,500 |
| Rent | R5,000 |
| Groceries | R3,000 |
| Transport | R1,800 |
| Electricity and water | R900 |
| Phone and data | R400 |
| School costs | R600 |
| Insurance and funeral cover | R500 |
| Total essentials | R12,200 |
| Existing store accounts | R700 |
| Money left after essentials and debt | R1,600 |
| Buffer kept aside (one quarter) | R400 |
| Most to commit to a new repayment | R1,200 |
What is repayment-to-income and why does it matter?
Repayment-to-income is simply your total monthly debt payments divided by your take-home pay. It shows how much of each pay cheque is already promised to lenders before you buy food or pay rent.
In Thandi's example, her existing accounts take R700 of R14,500. A new R1,200 repayment would raise the share of her pay going to debt from under five out of every hundred rands to just over thirteen out of every hundred. There is no single correct percentage, and we do not set a legal limit here. The point is to see the trend: the higher the share, the less room you have when something unexpected happens.
Think about stability too. If your income varies, for example if you work shifts, drive for a platform or sell at a market, base your calculation on a low month rather than your best month.
Why should you keep a buffer?
A buffer is the space between what you could pay and what you commit to pay. It absorbs the month when transport costs rise, a child needs medicine or load shedding forces you to buy extra candles, a power bank or a gas refill.
Without a buffer, one surprise can mean a missed payment, which can add charges and be reported to a credit bureau. The National Credit Regulator advises making a monthly budget, planning for unexpected costs such as a family member being retrenched, and keeping receipts of payments.
What should you check before you apply?
Run through this checklist with your budget in front of you. If you answer no to any line, pause before you apply.
- Do I know my take-home pay and my essential costs to the rand?
- Have I included every existing debt payment?
- Is the total repayable, including interest, fees and insurance, within the amount I set aside?
- Will I still cover next month's rent, food and transport after this repayment?
- Is my income certain on the repayment date?
- Am I borrowing for a need rather than to pay another debt?
- Have I checked that the lender is registered with the National Credit Regulator?
- Do I have the pre-agreement statement and quotation in writing?
What if the numbers do not fit?
A result that does not fit is a useful answer. You can ask for a smaller amount, look for ways to trim a cost this month, or ask whether a family member, an employer advance or a payment arrangement on the bill itself could close the gap for less.
The National Credit Regulator lists signs of over-indebtedness: borrowing money to pay some debts, skipping payments on certain accounts to pay others, being unable to pay bills at the end of the month, or receiving letters from creditors. If that sounds like you, speak to a registered debt counsellor before taking on more credit. Our guide on what to do if you cannot repay a loan explains how.
Frequently asked questions
How much of my salary should go to loan repayments?
There is no single right percentage for everyone. Work out what is left after essentials and existing debts, keep a buffer, and commit only part of the remainder. The lower your repayment share, the more room you have when a surprise cost arrives.
Should I use gross or take-home pay?
Use take-home pay, the amount that reaches your bank account after tax and deductions. Your bills are paid from that figure, so it gives a realistic picture.
Will the lender check my budget as well?
Yes. The National Credit Act requires a credit provider to assess your financial means and obligations before it grants credit. Your own budget helps you answer honestly and decide whether the offer is comfortable.
What if my income is irregular?
Base your calculation on a low month, not an average or best month. If your income swings widely, borrow a smaller amount or choose a longer, lower payment, and keep a larger buffer.
Is it a good idea to borrow to pay another debt?
The National Credit Regulator advises against borrowing to pay off other debt. If you are struggling with existing payments, contact your credit provider or a registered debt counsellor first.