Disposable income calculation

KALP, or the money left to live on calculation, is part of the credit assessment process used to evaluate a borrower’s ability to repay.

Glossary
Disposable income calculation

Explained – what does disposable income calculation (KALP) mean?

The money left to live on calculation, often abbreviated KALP, is a central tool for banks and credit institutions when assessing a loan application. The calculation determines how much of an individual’s income remains after routine living costs and loan expenses have been deducted. This provides a basis for deciding whether the borrower can service the loan in a sustainable, long-term manner within the credit assessment process.

A KALP calculation is subject to the requirements of the Consumer Credit Act and the Swedish Financial Supervisory Authority (FI). It is therefore common for lenders to engage specialists in credit risk management consulting to ensure the method complies with applicable rules.

When is a disposable income calculation relevant?

The question of KALP arises when an individual applies for a mortgage, an unsecured loan or another form of credit. The calculation helps the lender assess repayment capacity and meet obligations under responsible lending rules. It also requires the bank to test whether the customer has room in their budget to withstand future interest rate increases.

Financial advisers explaining disposable income calculation, with icons for housing costs, interest rates, living expenses, and personal spending.

Practical points when using the money left to live on calculation

To apply a money left to live on calculation correctly, there are several practical issues organisations must manage:

Ensure all income and expenditure are recorded accurately in the calculation.
Use standard allowances for living costs.
Factor in interest rate increase scenarios to test a household’s ability to pay over time.
Link the KALP outcome to internal credit policy and broader credit risk management.
Document the calculation in a manner that meets regulatory requirements.
Follow the Swedish Financial Supervisory Authority’s rules to maintain a consistent method.

By working systematically with KALP, lenders can strengthen their processes and achieve higher quality in the credit assessment. Engaging experienced credit risk management consulting support can also help align the approach with governance and internal control expectations.

Disposable income calculation

Why the disposable income calculation matters

The disposable income calculation is important because it ensures credit assessments are conducted fairly and sustainably. Without a robust calculation, both lenders and consumers risk situations where repayment becomes difficult or impossible. Legislators therefore require lenders to use KALP as part of their assessment.

KALP also plays a role in the wider financial system. When lenders use a consistent method to assess repayment capacity, the risk of over-borrowing is reduced. This supports a more stable credit market, benefiting consumers and the broader economy.

Over time, the use of KALP helps build trust between lenders and customers. Transparency and clarity in the credit assessment process give borrowers greater confidence in their decisions, strengthening the relationship between the parties.

A KALP calculation shows how much money a borrower has left after all necessary expenses and estimated loan costs are deducted from income.

Banks use KALP when an individual applies for a loan. It is particularly central to mortgage loan assessment because these typically involve large amounts and long repayment periods.

A disposable income calculation is made by taking disposable income and deducting all fixed costs and standard allowances for living expenses. The calculation also includes prospective interest rate increases to assess long-term ability to pay.

KALP helps ensure consumers are not granted loans they cannot repay. It therefore acts as protection against over-indebtedness and financial difficulties. It is also part of lenders’ obligations to follow the Consumer Credit Act and other requirements from the Swedish Financial Supervisory Supervisory Authority (FI).

The allowances often originate from the Swedish Consumer Agency, but require regular adjustment. Lenders must design their procedures to align with these guidelines.

KALP and the debt-to-income ratio are different ways of measuring repayment capacity. The debt-to-income ratio shows total household debt relative to income, while KALP focuses on the money left to live on each month after fixed expenses. Their purposes differ:

The debt-to-income ratio is primarily used as a measure of a household’s overall leverage.
KALP is used to ensure the household has sufficient funds for ongoing expenses.
Both are used by banks to meet expectations of responsible lending and sound practice within the credit approval process.

In this context, targeted credit risk management consulting helps integrate KALP outputs into bank credit assessment and governance.