Big borrowing: home loans and student loans

Ema, 31, earns €2,000 a month after tax and has saved €50,000. She has found a flat for €200,000. The bank tells her she could borrow up to about €222,700. How much should she borrow — and what stops banks lending even more?

Home loans: the biggest debt most people take

A mortgage is a long loan, often 20 to 30 years, to buy a home, secured on that home. In Slovenian it is usually called a stanovanjski kredit, secured with a hipoteka.

The part of the price you pay from your own savings is the down payment (lastna udeležba). The loan-to-value ratio, or LTV, compares the loan with the value of the home:

LTV = loan ÷ value of the home

If Ema borrows €160,000 for the €200,000 flat, her LTV is 80% and her down payment €40,000. She also needs money for purchase costs such as tax, notary and agency fees, which the loan usually does not cover.

How much can you borrow?

Banks also look at the debt-to-income ratio. In Slovenia and many European countries, this means all your monthly loan payments divided by your monthly income after tax. It is often called DSTI. (In some countries, “debt-to-income” means total debt compared with yearly income — always check the definition.)

In 2026, Banka Slovenije sets these limits for new loans:

• Binding: loan payments may take at most 50% of income, and at least €745 a month must be left after all loan payments. Banks may go above this for only a small share of their loans.
• Recommended: LTV of at most 80% for your own home and 70% for other housing loans.

Central banks set these limits because many households borrowing too much against expensive homes can turn a downturn into mass defaults and a banking crisis, as in 2008. The limits keep a safety margin for borrowers and banks.

A longer term lowers the payment but raises the total: on €200,000 at 4%, 30 years instead of 25 costs about €27,000 more in interest.

Borrowing again against a home you already own, for a car or a holiday, is cheaper than a personal loan. But it turns everyday spending into debt secured on the place you live.

Student loans: three very different worlds

• United States: federal and private student loans are common, balances can be large, and they are very hard to clear even in bankruptcy.
• England: government loans are repaid through the tax system, as 9% of income above a threshold, and any balance is written off after a set number of years. They work more like a tax on graduates’ income than a normal loan.
• Much of continental Europe: tuition is low or free, so students borrow less. In Slovenia, full-time study at public universities is free for most students.

Islamic home finance

Islamic finance does not allow riba, interest. Home and car finance is built instead as a sale, a lease or a partnership:

• Murabaha: the bank buys the item and sells it to you at a disclosed mark-up, paid in instalments.
• Ijara: the bank buys the home and rents it to you, often with ownership passing to you at the end.
• Diminishing musharaka: you and the bank co-own the home; you pay rent on the bank’s share and buy it out step by step.

The cost is real. A €20,000 car sold to you for €23,000 over 36 months costs about as much as a loan at roughly 9% a year.