Can I afford this loan?

A repayment is affordable when it still works in a bad month, not just a good one. This compares the repayment against what you actually have left.

Where the thresholds come from

There is no law that sets a safe level of borrowing, and anyone who quotes one as though there is has invented it. What lenders and credit counsellors broadly work with is the share of your income going to debt repayments:

• Under a fifth of your income is generally manageable.
• A fifth to a third is tight. It works until something breaks.
• Over a third is where people start borrowing to repay borrowing.

The second test matters more, and almost nobody applies it: what is left after your essential spending AND the repayment. If that number is near zero, the loan is not affordable no matter what percentage it works out to, because the first unexpected cost sends you back to borrowing.

If the answer is no

Borrowing a smaller amount over a longer period lowers the monthly figure, though it usually raises the total cost. That trade is sometimes worth making and sometimes not. How loan tenure works explains it.

If you are already repaying two or more loans and considering a third to cover them, that is the pattern that traps people. Read the debt trap guide before you borrow again.