Business Debts, Credit Cards and Car Loans: Protect Your Borrowing Power

If you run a business, have a couple of credit cards and a car loan, it can feel like buying a home is miles away.

The reality: you may be closer than you think. But you need to understand how every card limit, personal loan, car lease and business facility shows up in a lender’s calculator.

In this guide, we’ll unpack how those debts hit your borrowing power, then give you a one-week action plan to tidy things up before you apply.

In plain English: Australian lenders look at your income, subtract a standard living expense benchmark, then load in all your debts—personal and many business ones—at a higher test rate. Every $1 of monthly repayment they see is roughly $15–$20 less home loan they’re comfortable with. Reducing limits, closing unused facilities and structuring car and business finance properly can easily add $50,000–$200,000 to your borrowing capacity.

Understanding how each debt type shows up in a lender’s calculator is the first step.

1. How lenders actually calculate your borrowing power

1.1 The serviceability formula in plain English

When you apply for a home loan, the bank’s calculator (broadly) does this:

1. Adds up your gross income (salary, business income, rent, benefits).
2. Subtracts income tax to get net income.
3. Subtracts living expenses (your declared numbers, but cross‑checked against the Household Expenditure Measure – HEM).
4. Subtracts all existing debt repayments, including many business facilities.
5. Checks what’s left against the “stress-tested” repayment on the new home loan.

Most lenders in Australia currently add a 3% buffer above the actual interest rate to test affordability, in line with APRA guidance. So if your home loan rate is 6% p.a., they’ll test it at around 9% p.a. to make sure you can handle future rate rises.

If the leftover cash after steps 1–4 covers that higher test repayment with some margin, you pass. If not, they cut back how much they’re willing to lend.

1.2 Why limits matter more than balances on cards and overdrafts

With credit cards and many overdrafts, lenders don’t care much what you owe today. They care what you could owe.

Most will assume a monthly repayment of roughly 3% of the total limit, even if you clear it every month.

So a $20,000 card limit usually gets treated as a $600/month commitment. A $5,000 overdraft limit might be treated as $150/month, even if it’s at zero.

That $750/month total directly reduces the income available to service a home loan.

1.3 The self-employed twist: when business and personal blur

If you’re self‑employed, things get more complex:

• Lenders generally start from your taxable profit, not your pre‑deduction turnover.
• Aggressively minimising taxable income can significantly reduce borrowing capacity because the bank works from the lowest number in your financials and tax returns.
• In Australia, most lenders treat business facilities with a personal guarantee as personal commitments when assessing your home loan, even if repayments come from the business account (see also /insights/clean-up-credit-file-small-business-owner).

So a business overdraft, vehicle finance or equipment loan you “thought” was off your personal radar may be counted against you.

For a deeper dive on proving income without payslips, see /insights/self-employed-to-homeowner-without-payslip.

2. Credit cards and personal loans: small balances, big damage

2.1 How cards and personal loans are assessed

Most Australian lenders assess consumer debts roughly like this (policy varies by lender):

• Credit cards & personal overdrafts: 3% of the limit as a monthly repayment.
• Personal loans: the actual contractual monthly repayment (principal and interest).
• Buy Now Pay Later (BNPL): often treated as a small personal loan or as ongoing monthly commitments.

Even if you’re a “points hacker” who pays the card in full each month, a big limit still hurts your numbers.

2.2 Worked example: how $20k in cards can slash your capacity

Let’s use simple, rounded numbers and an indicative interest rate just to show the effect. (This is illustrative only, not a quote.)

Assume:

• Combined household gross income: $150,000 p.a.
• No kids, standard living expenses at HEM.
• No other debts.
• Target home loan on principal & interest over 30 years.

With no consumer debts, a typical lender might be comfortable around a $800,000 home loan (tested at a 3% higher rate).

Now add:

• Credit card limit: $20,000 → assessed at ~$600/month.
• Personal loan: $15,000 with repayments of ~$350/month.

Total extra monthly commitments: $950.

At today’s test rates, an extra $950/month could easily chop your borrowing power down by $120,000–$160,000+. Suddenly the same household may only qualify for $640,000–$680,000 instead of $800,000.

The message: those “manageable” debts are not neutral. They’re crowding out space in your borrowing capacity.

For first‑home buyers in tight markets like Sydney, that difference can be the gap between a unit further out and something close to where you actually work and live (see also /insights/navigating-sydney-first-home-buyer-market-2026).

2.3 What you can do this week

If you’re 3–12 months away from applying, quick wins include:

• Cut unused credit card limits. If you run $2,000/month through a card for points, you don’t need a $25,000 limit. Dropping to $5,000 can free up ~$600/month in the calculator.
• Close duplicate or legacy cards. Old fee‑charging cards you barely use are pure dead weight.
• Refinance high‑rate personal loans. If you can replace multiple small personal loans with a single lower‑rate facility (without extending the term too far), your assessed monthly repayments can drop.
• Clear small BNPLs and stop using them. Lenders are increasingly wary of BNPL. See /insights/bnpl-overdrafts-trade-accounts-hidden-debts for how these “hidden debts” are treated.

These are changes you can start this week that often show up in your bank statements and credit file within 1–3 months.