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At A Glance
- Your living expenses can affect how much room you have for a new loan.
- Lenders want a realistic picture of what it costs you to live.
- Spending benchmarks can be used as part of that assessment.
- If your actual expenses are higher than the benchmark, those higher costs can affect the calculation.
- Individual transactions can raise questions when they point to an ongoing expense or commitment.
Are Lenders Spying On Your Spending?
The borrowing process isn’t designed to make you feel like you’re being analysed. But it sure is good at it.
When you’re getting ready to apply for a loan, you open your bank statement and suddenly every takeaway order, shopping trip and random purchase from the last few months starts looking a little more questionable.
It makes you start to wonder: is anyone actually going to care about all of this?
As with most things in life, the answer is “it depends”.
Of course, your spending habits do matter when applying for a loan.But the goal isn’t to decide whether you should have bought that pair of shoes or ordered take-away on Friday night.
Table of Contents
What Counts as a Living Expense?
Bills, bills, and more bills? That sounds about right.
Living expenses are basically the ongoing costs of running your life.
That can include things like:
- Food and groceries
- Electricity, gas, phone and internet
- Transport and fuel
- Insurance
- Childcare and school costs
- Medical expenses
- Recreation and entertainment
- Other regular household spending
It’s worth separating these from debts like credit cards, car loans or personal loans. Those still count when we’re looking at your overall position, but lenders may deal with them separately from your everyday living expenses.
What Is a Living-Expense Benchmark?
It’s simply a standardised way for lenders to get a baseline for living expenses. Lenders can compare your real expenses against the benchmark to see where the differences are.
One common example is the Household Expenditure Measure, or HEM, which gives lenders a basic guide to everyday living costs for a household like yours.
So if the expenses you declare look unusually low, a lender may still use a benchmark when running the numbers. On the other hand, if they’re unusually high, that can make certain areas of spending stand out.
What If You Spend More Than the Benchmark?
Have you been splashing your cash? That’s fine, we all do from time to time.
People can get confused about benchmarks and think they’ve entered some kind of “red zone” where they’re suddenly spending too much. But that’s not quite how it works.
If your actual living expenses are higher than the benchmark, the lender may use those higher expenses when working out what you can afford.
That can leave less room in the budget for a new loan, which can then affect how much you’re able to borrow.
It’s really about what your overall budget looks like. What comes in, what goes out, what’s left over, and whether there’s enough room for the loan you want.
What If Your Spending Looks Really Low?
Believe it or not, spending too little, or at least saying you do on a loan application, can be noticed as well.
I’ve actually had this happen myself. When I was younger, we were questioned when applying for a loan because our living expenses looked unusually low. The simple reason was that we genuinely weren’t spending much because we were saving everything we could. Yes, those were some lean times. Beans are good.
So, the lovely team at the bank ended up using a benchmark figure that was higher than what we’d declared, which brings us neatly back to our story.
If the expenses you declare look much lower than what the lender would normally expect for a household like yours, they may use a benchmark figure instead or ask a few more questions about how you’re managing your costs.
It’s also pretty easy to underestimate your spending, so lenders may ask questions to make sure the living expenses you’ve provided make sense.
The lender ultimately needs a realistic expense figure it can use when working out whether the new loan is affordable.
Will a Lender Question Individual Transactions?
Sometimes, but usually only when something stands out or doesn’t quite match the rest of the application.
A lender generally isn’t interested in interrogating every coffee, takeaway order or shopping trip. But a transaction can be questioned if they think it points to something bigger.
That could be a regular payment you haven’t listed, another debt or account, unusually large recurring transfers, or spending that doesn’t line up with the living expenses you’ve declared.
If something like that pops up, the lender may simply ask what it is and whether it’s ongoing.
Nobody Likes Surprises
Having your loan application held up or declined is never a good feeling. That’s why I want to understand the full picture upfront.
As your finance broker, I’m here to represent your position and find the most suitable option for what you’re trying to do. At the same time, we still have lender policies and our own legal obligations to work within.
I’d much rather understand an expense before we submit an application than have a lender raise it halfway through.
That doesn’t mean I’m here to police how you spend your money. I’m trying to make sure the figures we use are realistic and that there aren’t any surprises sitting in the background.
If something looks unusual, recurring, or likely to matter to a lender, we can talk about it upfront and work out how it fits into the bigger picture.
The better we understand your spending before applying, the easier it is to present the situation properly from the start.
What To Take Away
A lender generally cares less about whether you bought something they personally approve of and more about what your spending says about the cost of running your life.
That’s why your declared expenses, bank statements and spending benchmarks can all come into the assessment. They’re trying to get to a realistic figure they can actually use.
If you want help working through what that looks like in your situation, check your options with BrightCredit.
Tom is the founder of BrightCredit and a finance broker focused on borrowing situations that are not straightforward. His writing helps Australians understand credit, loans, and the details that can affect their borrowing options in a clearer, more practical way.