Cost of living

Anyone who wants to take out a loan – for example, to finance a property or a car – needs an accurate overview of their living costs. This is what the bank uses when checking the creditworthiness of a potential borrower. However, most banks do not base this on the actual cost of living, but apply a fixed budgetary allowance. For prospective borrowers themselves, it is nevertheless useful to carry out an income-expenditure calculation. This allows them to determine in advance whether they can really afford a loan.

  1. The most important facts in brief
  2. Which expenses count as living expenses?
  3. The bank uses real income when granting a loan
  4. Instead of living expenses, however, banks often use the household allowance
  5. The cost of living index (consumer price index)
  6. Calculate cost of living
  7. What happens if the cost of living differs from the household flat rate??
  8. Related topics
  9. Further links
  10. Start credit comparison now

The most important facts in brief

  • With the budget calculator from can quickly calculate your cost of living.
  • However, when deciding on a loan, banks usually offset your income against the household allowance. This is roughly 600 to 800 euros for a one-person household, an additional 200 euros for each additional person.
  • The remaining surplus must be sufficient to cover the monthly installment for the loan without any problems.
  • To lower the rate, borrowers can extend the term of the loan. But this increases the total cost of the loan.

Which expenses count as living expenses?

Living expenses are all expenses that are regularly incurred in everyday life and ensure survival, but also enable education, leisure and travel. The amount of these costs differs depending on household size, place of residence and standard of living. For example, rents in a large city or college town are usually much higher than in a small town or in the countryside. If you travel a lot and like to go to the theater or to restaurants, you have higher expenses than someone who prefers to spend his weekend or vacation at home.

Private consumer spending

The monthly cost of living is also called private consumer spending and includes the following areas, according to the Federal Statistical Office:

  • Housing costs (monthly rent, utilities)
  • Food (food, beverages, tobacco products)
  • Clothing
  • Drugstore items
  • Mobility (vehicle costs, public transport tickets, airline tickets)
  • Education (training and tuition fees, cost of materials)
  • Vacation trips
  • Sports and leisure (gym, cinema, theater)
  • Animal husbandry

Other expenses

In addition to the expenses necessary to meet everyday needs, some consumers also have other factors that the Federal Statistical Office does not include as living expenses. This includes, for example:

  • Alimony
  • Insurances
  • Installments for existing loans
  • Management costs for existing real estate

The bank uses real income when granting a loan

When taking out a loan, what matters most to the bank is the difference between income and living expenses, i.e., the disposable income left over at the end of the month. The bank uses this to measure which installment amount is affordable for the borrower and then decides on his creditworthiness.

Income includes net monthly salary and other regular income. This could be the following, for example:

  • Net income from self-employment
  • Net income from marginal employment
  • Net income from pension or retirement
  • Net income from regular overtime, bonuses or royalties
  • Income from alimony and child support
  • Income from capital assets
  • Income from investments
  • Rental income from existing real estate

Instead of living expenses, however, banks often use the household allowance

Credit institutions seldom use the real living costs of their prospective customers for their assessment. Most people assume a guideline value called a "household lump sum". The value often differs considerably from region to region. As a rule, the banks come up with Single person household at 600 to 800 euros. For Each additional person come 200 to 250 euros Add.

This does not include the monthly costs for warm rent, alimony payments, construction financing installments and other existing loans. Most banks add these to the household flat rate.

Offset against the income, the result is now how much money the interested parties can raise monthly for their financing project.

The cost of living index (consumer price index)

Based on the cost of living index (consumer price index), banks can read the current average cost of living and thus determine their flat budget rate. The index is collected annually by the Federal Statistical Office and is used to monitor price trends that affect the cost of living. This means that the inflation rate, which is important for borrowers, is determined. While the overall consumer price index was still at 75.8 points in January 1993, it had already risen to 108.1 points in January 2017. In 2020, the consumer price index was 105.5 points. The index can also be viewed by region, household type and size, and product categories.

Calculating living expenses: Here’s how

Prospective customers calculate their cost of living by adding up all monthly expenses. What is exciting to know, however, is how much is left over in the end when households subtract living expenses from their net income. To do this, they make up the difference between any income and all expenses. The result represents how much money is left over each month and can be put into the loan financing. Of course, it makes sense not to put the entire surplus into the loan. Every household benefits from monthly reserves – after all, it’s never predictable when the washing machine will give up the ghost or the car will need a major repair.

Interested parties can calculate their cost of living without a formula or calculator using the Verivox household calculator. You can enter many different types of income and expenses there, and set the period under consideration to "monthly," "quarterly," "semi-annually," or "annually". This is how income and expenses can be clearly compared with each other. The calculator presents as a result the sum of monthly income, the sum of monthly expenses and the resulting amount of money still available.

What happens when the cost of living deviates from the household flat rate?

The household lump sum is usually firmly defined at the banks and savings banks. But what actually happens when the real cost of living of the prospective borrower is significantly below or above this amount? Depending on the standard of living, expenses can vary greatly from household to household. Special costs that do not occur in every household are often calculated separately – for example, in the borrower’s self-disclosure.

A downward correction of the household lump sum is usually not made, since the amount is based on the usual social benefits and is therefore already set relatively low. Generally speaking, if you can only just cover your living costs with your income and have little left over at the end of the month, you’re unlikely to get a loan. For a good chance of getting a loan, the budget surplus should be as large as possible.

How much credit can I afford?

This guide helps calculate how much credit you can get and at what income level.

With a favorable debt rescheduling loan you can lower the rates for existing loans.

Repayment calculator lets you calculate when a loan will be paid off and create a repayment plan.

Related topics

  • Proof of income
  • Credit assessment
  • Debit interest and effective interest
  • Guarantee
  • Schufa information
  • Purpose
  • Scoring
  • Postident procedure
  • Legitimacy check
  • Self-disclosure
  • Processing fee

Further links

  • How to calculate how much house you can afford
  • Checking ancillary rental costs – saving money and energy
  • Financing a new convertible: This is how much the car may cost

Start loan comparison now

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