Borrowing power through the life stages

Lots of things in life don’t stay the same as we age. Our priorities shift, our goals might move, and how we spend our time can change. Did you know that your borrowing power may also change as you go through the stages of life? In the same way that your goals and priorities as a young parent might not be the same as when you were a student, you may find your borrowing power is moving too. Wherever you’re at in your life, it may be worth understanding what could be possible.

Here are a few things to know about how it can change, and what you need to know, no matter which stage you’re at.

Borrowing power isn’t set in stone

Your borrowing power is something that changes over time. Even if things like your credit score stay the same, the way that a lender might assess your borrowing power can shift. Sometimes this might be a quick change from year to year, while in other cases it could be a slower transition.

Starting out

When you’re a young adult, maybe moving into your first full-time job or buying your first car, you may have lower borrowing power than you’ll have later in life. But the good news is that this is when you have a significant opportunity to put yourself on the right track.

You may have a less extensive credit history, just because you haven’t had time to build it up through years of paying bills on time. You could have a smaller income, too, which may mean your borrowing power is still building. 

But these may well be the years where you are able to start creating a track record that will be a big help later on. Building your credit history and reinforcing your creditworthiness should serve you well down the track.

In New Zealand, developing a credit history early with something like a phone plan or a small loan that you manage well can be a really positive step , if those decisions fit well with your budget, wider financial needs and plans

The family years

Starting a family often comes with a big increase in obligations, and sometimes expenses. You may be juggling a mortgage or daycare costs, paying more for food and power for a growing household, and generally have a fuller picture than you did a few years earlier.

At this stage many people have more established careers and higher incomes, so while expenses can increase, your borrowing power will take into account the fuller picture.

Of course, this path isn’t set in stone. Some people buy a first home before having children, while others do it the other way around. Some people don’t have children, and others may go back to study or change careers later in life.

Hitting your stride

If you’re somewhere near the middle of your career, you may be really starting to hit your stride. Maybe you’ve paid off some of your home loan, or built up some investments. Hopefully, you’ve got a great credit history that shows lenders can trust you to repay your loans. Some of your commitments may be easing so there may not be as much pressure on your budget. This may be the time of life when your borrowing power is highest.

Later on

Your ability to borrow money doesn’t disappear as you get older. In the later years of your career, your commitments may be lower and you may have more discretionary income. Rather than looking at your age alone, lenders will be interested in how any loan fits into your wider plans. Are you likely to keep working for a while? Or are you planning to retire soon? It might be that a shorter loan term is worth considering, depending on your circumstances.

Wherever you’re at, it’s worth knowing

Borrowing power changes through your life. Lenders in New Zealand are required to ensure that any loans they offer are affordable, which is why they need to assess what’s reasonable for you, and that assessment can change as your circumstances do. Not everyone follows the same life path, but most people go through different phases of life. Understanding how your borrowing power could be affected in each will help you to understand what your options could be if you’re considering a loan.

Wherever you're at, it can help to find out where you stand - the better finance™ team is happy to talk it through.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.