A credit ceiling is the maximum amount of money a borrower can receive from a financial institution. For instance, when applying for a Home Ownership Loan (KPR), you might request a specific loan amount. However, the financial institution doesn’t always disburse the full amount you applied for.
Understanding what a credit ceiling is—along with examples and tips on how to apply—can help you prepare your finances more effectively.
Read on to learn everything you need to know about credit ceilings and how to apply for them properly!
What Is a Credit Ceiling?
A credit ceiling is the maximum amount of money a borrower can obtain from a financial institution, such as a bank or financing company, as agreed in a credit contract.
This amount is determined based on the institution’s assessment of your credit history, income, and repayment ability. In short, the credit ceiling reflects the lender’s trust in your financial capability.
The higher your credit ceiling, the more flexibility you have to meet various needs—such as purchasing goods, paying for education, or covering urgent expenses.
Understanding the credit ceiling also helps you manage your finances and avoid over-leverage, which means borrowing beyond your repayment capacity.
Causes of Credit Ceiling Reduction
In addition to understanding what a credit ceiling is, it’s important to know the factors that may cause it to decrease so you can manage your debts better. Below are several factors that can lead to a reduced credit ceiling.
1. Poor Credit History
One of the main reasons a credit ceiling decreases is poor repayment history.
If you frequently make late payments or miss payments altogether, financial institutions will consider you a high-risk borrower. As a result, your previously approved credit ceiling may be lowered.
2. Decrease in Income
If your income decreases—due to job loss, reduced working hours, or other reasons—the financial institution may reduce your credit ceiling.
This helps the lender reassess your repayment ability based on your new income level.
3. Increased Debt
If you have multiple debts that are poorly managed, financial institutions may lower your credit ceiling.
A high debt-to-income ratio indicates potential financial instability and poses a risk to the lender.
Example of a Credit Ceiling
A credit ceiling is the amount of credit granted by a financial institution (lender) to a borrower, as stated in the credit agreement. It can be calculated easily using the following formula:
Credit Ceiling = Property Price – Down Payment Paid to the Financial Institution
Let’s look at an example:
Rina wants to buy a house through a KPR at Bank X. The house costs Rp600,000,000, and she pays a down payment of Rp120,000,000. The credit ceiling would be calculated as follows:
600,000,000 – 120,000,000 = 480,000,000
So, Rina’s credit ceiling is Rp480,000,000, excluding interest and repayment term, which will be agreed upon with the bank.
Another example: If she buys a house priced at Rp900,000,000 from Bank Y with a minimum down payment of 25% (Rp225,000,000), but Rina decides to pay Rp250,000,000 instead, the calculation would be:
900,000,000 – 250,000,000 = 650,000,000
Thus, Rina’s credit ceiling is Rp650,000,000, with terms and conditions according to the agreement with the bank.
Tips for Applying for a Credit Ceiling
To ensure a smoother application process and get the credit ceiling that fits your needs, here are some practical tips to improve your approval chances:
1. Maintain Good Communication
Start by building a good relationship and clear communication with the financial institution’s representative.
Discuss important details such as repayment terms, minimum down payment, interest rates, and other requirements. Don’t hesitate to ask questions so you can get the right information.
2. Check Your Credit Score
Before applying, make sure your credit score is in good standing. This score reflects your repayment history and the lender’s trust in your ability to repay loans.
If there are any inaccuracies in your credit report, correct them immediately to avoid application delays. A strong credit score shows that you’re a responsible and trustworthy borrower.
3. Prepare Supporting Documents
When applying for a credit ceiling, ensure all required documents are ready, such as pay slips, financial statements (for entrepreneurs), and identification documents.
Having complete documentation speeds up the evaluation process and helps the bank assess your repayment capacity while also guiding you to determine the appropriate credit ceiling.
4. Understand Your Needs
Before applying, assess your financial needs. Do you need a high ceiling or just enough for specific purposes?
Adjusting the credit ceiling to your actual needs ensures the loan is used efficiently and helps prevent future financial strain.
5. Adjust Down Payment to Your Capacity
Your down payment (DP) significantly affects the amount of credit ceiling you’ll receive.
Typically, financial institutions require a minimum DP of around 10% of the property price. However, paying a larger DP can reduce the loan amount and interest burden.
6. Avoid Applying for Multiple Loans
If you plan to apply for a credit ceiling, avoid applying for other loans simultaneously.
Having multiple loan applications can make you appear financially overextended. Focusing on one application increases your credibility and improves your chances of approval.
7. Build a Good Reputation with the Lender
Establishing a positive relationship through regular transactions and transparent communication can strengthen the lender’s trust in you.
This trust also grows from showing financial stability and responsible account management.
That’s a complete explanation of what a credit ceiling is, along with examples and tips for applying. Understanding these aspects will help you manage loans more wisely.
In addition to credit ceiling applications, BFI Finance offers various financing options tailored to support your financial needs.
You can apply for financing with collateral such as motorcycle BPKB, car BPKB, or property certificates (house, shop, or office space).
All BFI Finance services are licensed and supervised by the Financial Services Authority (OJK), ensuring a safe and transparent application process.
Let’s make your financial plans a reality because #SelaluAdaJalan with BFI Finance!
