# Credit Limit Calculations?



## crutch dags (27 January 2014)

Hi All,

I recently tried to increase my credit limit for a margin loan by $1.2M, up from a current loan of $1M, which proved quite difficult. First, the limit was rejected so I asked what I would need to do to get the credit I requested. I couldn't get a straight answer except that "income is important". This was frustrating because all my calculations suggested I could easily afford the repayments with a combination of my regular salary and dividend income. Furthermore,  I was not going to go over the maximum Loan to Value Ratio permitted.

Then I suggested "what if I turned this cash into shares" and "what if I used my wife as a guarantor"? This turned out to be successful but it highlighted the fact that it is difficult on your own to determine what the bank will lend you using simple inputs (income, liabilities, assets, gearing level etc).

I am now exploring the theory (my own theory) that increasing loans by large amounts is more difficult than increasing loans by multiple smaller amounts (e.g., one loan for $1M is harder to obtain that two loans for $500k). The rationale here is that banks don't count future income in their calculations (but they count future debt). Thus, if you try to get a loan that is relatively large then the income calculations don't stack up. With the two smaller loans, the first loan is easier to obtain that the single large loan. After the first small loan is approved, the income can then be used in the application for the second loan.

Does anyone else have similar experiences or advice? I find it strange that there is not a calculator provided for margin loan credit limits, as there is with home loans. 

Crutch


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