Can I Afford a Loan? Discover Peace of Mind (2026)

So, you've been thinking about taking out a loan. Whether it's to buy your first home, upgrade your current living situation, or consolidate debts, the question that often arises is: "Can I afford a loan?" With the myriad of options available, understanding your borrowing capacity and the costs involved is crucial. In this post, we'll break down everything you need to know to assess your ability to afford a loan in the current Australian market.

Understanding Loan Affordability

Loan affordability hinges on several factors, including your income, existing debts, lifestyle expenses, and the prevailing interest rates. It's not just about whether you can make the repayments now, but also if you'll be able to sustain them in the future should circumstances change.

When lenders assess your loan application, they consider your debt-to-income ratio, which is the percentage of your income that goes towards servicing debts. A lower ratio indicates a healthier financial position and a greater ability to manage additional debt.

Current Market Rates and Requirements

As of 2026, the Australian loan market is witnessing interest rates ranging between 6.49% and 12%, depending on the type of loan and the borrower's credit profile. Here's what you need to know about the current loan landscape:

• Interest Rates: Variable rates are typically lower than fixed rates but come with the risk of fluctuation. Fixed rates offer stability but might be higher.
• Loan-to-Value Ratio (LVR): Lenders usually prefer a maximum LVR of 80%, although some may offer up to 95% with lenders mortgage insurance (LMI).
• Credit Score Requirements: A good credit score (usually above 650) is essential for securing competitive rates.

To better illustrate, here's a comparison table of different loan options available through Esteb and Co's extensive network of 83+ lenders:

Steps to Determine Loan Affordability

Assessing whether you can afford a loan involves careful planning and calculation. Follow these steps to get a clearer picture:

1. Calculate your monthly income after taxes and any regular income streams.
2. List all your monthly expenses, including groceries, utilities, and discretionary spending.
3. Determine your current debt obligations, such as credit card payments and other loans.
4. Use a loan calculator to estimate potential loan repayments based on various interest rates and loan terms.
5. Consider a buffer for interest rate rises or unexpected expenses.
6. Consult with a mortgage broker, like Esteb and Co, to explore options across multiple lenders.

Expert Tips and Considerations

Here are some expert tips to help you navigate the loan landscape with confidence:

• Build a Financial Buffer: Aim to have at least three months' worth of expenses saved up as a safety net.
• Improve Your Credit Score: Regularly check your credit report for inaccuracies and pay bills on time to boost your score.
• Consider Future Changes: Factor in potential life changes, such as having children or career shifts, that could affect your financial situation.
• Consult Professionals: Engage with a mortgage broker who can provide tailored advice and access to a wide range of lenders.

Frequently Asked Questions

1. How much of my income should go towards loan repayments?
It's generally recommended that no more than 30% of your gross income goes towards loan repayments to avoid financial strain.

2. What if interest rates rise after I take out a loan?
Ensure you have a buffer in your budget to accommodate potential rate increases. Fixed-rate loans can provide stability against rate hikes.

3. Can I get a loan with a low credit score?
While it's possible, a low credit score may result in higher interest rates and fewer options. Improving your credit score can enhance your borrowing terms.

4. Should I opt for a fixed or variable rate loan?
Your choice depends on your risk tolerance and financial goals. Fixed rates offer stability, while variable rates may be cheaper but riskier.

5. How do I choose the right lender?
Consider factors such as interest rates, fees, customer service, and flexibility. A mortgage broker can help you compare options from multiple lenders.

6. What is LMI, and do I need it?
Lenders Mortgage Insurance (LMI) is required if your deposit is less than 20% of the property's value. It protects the lender, not you, in case of default.

7. Can I make extra repayments on my loan?
Many loans allow extra repayments, which can reduce the loan term and interest paid. However, check your loan's terms for any restrictions or fees.