4.3.3 Affordability

What does Philip need to think about?

Think back to the financial planning model. If Philip were to apply the ‘Stage 1: assess the situation’ part of the model, what are the issues he would need to consider?

Philip assesses the situation

Using as a guide the assessment part of the financial planning model, Philip would need to consider the relative importance of buying the music system within the wider context of his existing goals.

He would need to think about the constraints on his resources, and calculate whether he can afford the repayments within his household budget. In thinking through affordability, Philip should consider the possibility that his circumstances may change. For instance, if his household income were to fall or be interrupted during the term of the loan, would Philip still be able to afford the repayments? This assessment of affordability is essential – and it will, in any case, be undertaken by the lender when scoring Philip’s creditworthiness ahead of approving a loan.