When banks decide whether to give someone a loan, they want to know one thing: Can this person really afford it? To help answer that, they use affordability ratios — simple comparisons between income (how much money you earn) and debt (how much money you owe people).
1. Debt-to-Income
This shows how financially stretched someone already is.
It compares total monthly debt payments to monthly income.
How it’s calculated:
Monthly debt payments ÷ Monthly income
Example: If a person earns J$200,000 and pays J$60,000 toward loans, their Debt-to-Income is 30%.
2. Disposable Income
This looks at what money is left after paying bills and debts. Some investors like to call this “Free Cash Flow”. It helps lenders see if a person still has breathing room.
How it’s calculated:
Income − Living expenses − Debt payments
If very little is left, taking another loan may be risky.
3. Loan-to-Income
This compares the total loan size to a person’s annual income. It helps lenders check whether the loan is too big overall.
How it’s calculated:
Total loan amount ÷ Annual income
Example: A J$6 million loan with J$2 million annual income = 3× income.
4. Payment-to-Income
This looks only at the new loan and asks if the monthly payment alone is affordable.
How it’s calculated:
New monthly loan payment ÷ Monthly income
These ratios help banks lend responsibly — protecting both the borrower and the financial system from taking on too much debt.