A personal balance sheet is a list of the assets and liabilities and debts held by an individual, detailing what they own and what they owe. This information is used by lenders when assessing loan applications. While balance sheets are widely associated with businesses, they may not be as closely associated with personal finances. You may not be the type to keep spreadsheets of your personal finances, but just about everyone has a personal balance sheet.
For those that are new to this concept, think of it as a record of weighing up what you own, your assets, against what you owe, your debts and liabilities. Where you own more than you owe, the balance sheet would be seen as positive. Where an individual owes more than they own, this would be seen as a negative.
Unless required for a specific purpose, individuals do not need to keep a record of their assets and liabilities. But the information will be requested by lenders when a finance application is submitted.
Personal Balance Sheet Inclusions
When asked to provide your personal balance sheet, you will need to make a list of your assets and a separate list of your liabilities. Assets are typically valued at what they would sell for in their present condition. Assets typically include real estate property both the home and investment properties, motor vehicles, boats, RVs, artwork, jewellery, household items and furniture and other items of value. When asked for these details, a lender or other party may request valuations. Financial assets include cash in the bank, shares, bonds, superannuation, gold, and similar.
Individuals with their own business may be required to details their asset holdings in the business separately.
The list of liabilities would include debts and other commitments. These would include mortgages on property, car, boat, RV and personal loans, tax bills, and others. Lenders also treat credit card limits as a liability as the limit represents a potential debt. Not just the current balance.
While not strictly defined as balance sheet items, lenders may also request details of regular outgoings as liabilities. These include rent, bills such as telcos, streaming services and power, insurance, rates and general living expenses.
Where assets are under finance, that is the individual is paying off a loan, the goods would be considered an asset and the amount still owed on the loan as a liability.
How Personal Balance Sheet Affects RV Finance
When applying for Secured Caravan Finance or an Unsecured Personal Loan for a recreational vehicle, lenders will request details of assets and liabilities. Under Consumer Credit Laws as regulated through ASIC credit providers must request certain information from applicants on their financial position to assess the application.
Lenders will be assessing the individual’s ability to service the loan amount requested with their income level, wealth and their existing commitments. Debts and liabilities are also listed in an individual’s Credit Report. A high level of debt may equate to a less than good credit score. This may negatively impact the interest rate offered.
Income is separate from the asset/liabilities and is a key determinant of an individual’s borrowing power or the credit limit approved by a lender. But the income will be assessed against current debts and other regular financial commitments.
Where an individual has a higher level of liabilities than assets, they may be seen as a higher risk and attract a higher interest rate or lower credit limit.
Where secured finance is being sought, the goods are used as the loan collateral. Many applicants are not required to provide other assets as security for that loan. Asset holdings may be less important to the application assessment than the liabilities.
When planning to purchase a RV with finance, preparing a list of assets and liabilities may expedite the loan approval process. Having all the required documentation ready to provide to our brokers may avoid delays.
How and Why to Improve a Personal Balance Sheet
Have a positive rather than a negative assets-to-liabilities balance may contribute to a higher credit limit, lower interest rate and a more affordable RV loan. Before submitting a loan application, individuals may prepare their lists and review how they may improve their position. Essentially, this would involve addressing any imbalance between liabilities and assets.
Finalising other loans before applying for a new loan can be worth considering where possible. Without that debt, the balance sheet and, potentially, the credit score would be improved. Contacting the bank and having a credit card limit reduced may also improve the position as lenders treat the limit, not the balance, as the liability. Where multiple cards are held, consider cancelling those that are unnecessary or rarely used.
Contact Jade Caravan Finance 1300 000 003 for information on what details of your personal balance sheet will be required to apply for a caravan loan.
DISCLAIMER: THE DETAILS AND INFORMATION IN THIS CONTENT ARE PREPARED AND PRESENTED PURELY FOR INFORMATION AND NOT INTENDED IN ANY WAY AS THE SOLE SOURCE OF FINANCIAL ADVICE FOR CARAVAN PURCHASING. IF ADDITIONAL FINANCIAL ADVICE IS REQUIRED, READERS SHOULD REFER TO A FINANCIAL ADVISOR. NO LIABILITY IS ACCEPTED FOR ANY ERRORS, PRODUCT DESCRIPTION VARIATIONS, OR OTHER MISREPRESENTATIONS OF INFORMATION AS PRESENTED.
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