Personal loans are provided by banks and other financial institutions to assist borrowers in achieving a variety of objectives, including organizing a dream wedding, taking an exotic vacation, or covering unforeseen medical expenses. The majority of borrowers are ignorant of the maximum loan amount they may be qualified for. Your eligibility for a personal loan will not be determined using a predetermined formula. To determine the amount you are eligible for, lenders take into account a variety of criteria. This article has all the details you need to know about personal loans, including the maximum loan amounts that banks will provide you based on your income.
What is A Personal Loan?
A Personal Loan is an unsecured loan that is easier to obtain when compared to other kinds of loans. It provides you with the urgent funding you may need. Personal Loans are frequently used for expenses like weddings, education, vacation, and healthcare. Due to the unsecured nature of this financing option, lenders do not require you to put up any collateral to secure the loan.
It’s easy to apply for a Personal Loan. However, getting the loan accepted and sanctioned can be difficult in some cases. How much loan amount one can get also depends on a number of variables. Your monthly income and credit score are the most important factors. Your monthly income is given more weight because it enables lenders to determine your capacity to make on-time EMI repayments, eliminating the possibility of defaulting.
How Much Can One Borrow?
Every borrower worries about the amount the lender will approve when applying for a Personal Loan. Beyond the crucial question of the maximum Personal Loan amount that can be obtained, it is essential to meet all necessary eligibility requirements. For those who are salaried and self-employed, it is different. The following are the primary requirements for eligibility for a Personal Loan by Credit success.
- The borrower should be between 24 and 57 years old.
- The borrower’s income should be a minimum of 30,000.
- The borrower must work full-time for a public/private limited corporation or a limited liability partnership (LLP).
- A self-employed individual should be in business for at least 5 years.
- Salaried individuals must have at least one year of work experience and at least two months of stable employment at their present workplace.
To determine the Personal Loan amount one is eligible for, lenders use two main methods. They are called the Multiplier method and Fixed Obligation Income Ratio.
Multiplier Method
When determining whether a borrower is eligible for a Personal Loan, many lenders employ the multiplier approach. The Personal Loan amount is determined using this method based on a pre-determined multiple of the applicant’s net monthly income. Depending on the lender and monthly income, the multiple might be anywhere from 10 to 24 times the applicant’s monthly salary. So, for example, if your lender offers a loan amount 24 times your NMI (Net Monthly Income) and your NMI is 50,000 then you can avail of a loan of 12 Lakh.
Fixed Obligation to Income Ratio (FOIR)
It is calculated as a percentage of your net monthly income divided by your fixed monthly expenses. This shows how much money you have available (savings). The ability of this disposable income to cover loan repayments is next assessed. The ideal FOIR ratio is between 40% and 50%, meaning that your monthly costs shouldn’t be more than 50% of your revenue. The lower the FOIR ratio, the better. However, the FOIR ratio for high earners can increase to between 60% and 70%. When applying for a Personal Loan, for instance, a person making Rupees 30,000 can choose an Rupees 8,000 EMI and obtain a Personal Loan up to Rupees 5.5 Lakh. However, if the person’s monthly EMI is less, say Rupees 3,000, the acceptable amount for the Personal Loan will be larger (up to Rupees 7.7 lakh), provided their credit is good and they are availing of a loan with a 60-month term.
Also Read: How to get Personal Loan without Salary Slip?
List of Required Documents to Apply Personal Loan
To apply for a Personal Loan, you are required to submit the following list of documents:
- KYC documents: PAN card or Aadhar Card
- Proof of Address: Rent agreement/Passport/Utility Bills
- Income Documents: Latest pay slips
- Financial Documents: Last 3 months salary credited bank statement.
- Proof of Employment: Employee ID Card or Official Mail ID confirmation.
- Please note that the aforementioned documents list is indicative. Lenders may ask you to submit some additional documents at the time of loan processing.
Factors that Affect Personal Loan Eligibility
Since Personal Loans don’t require collateral, lenders base their eligibility decision solely on the borrower’s credibility. The following are some factors that are crucial in determining a person’s trustworthiness.
Income
The applicant’s monthly income is one of the most important factors that lenders consider before approving his/her Personal Loan application. It would be ideal if you made at least Rupees 30,000 every month. However, it is not the only requirement, and having an income beyond Rupees 30,000 does not necessarily assure approval. The amount of money you need to pay for your financial obligations is considered by lenders when calculating your debt-to-income ratio.
Credit Score
Every person receives a three-digit credit score from a credit information company like CIBIL. This rating ranges from 300 to 900. It makes you more credible in the lender’s eyes. Your previous loan repayments, bills, and credit card payments, among other factors, are considered when calculating your credit score. Your probability of getting a loan approved will rise if you have been paying all your dues on time and have a high credit score. A score of at least 700 is ideal.
Employment Status
When deciding whether to approve or deny your loan application, lenders consider your employment situation. They evaluate the standing of the business you work for. You may be eligible for a loan with a greater loan amount if you work for the government or a large firm. Your overall employment history with the organization is also important. The chances are in your favor if you have been employed by the company for more than a year at the time of the application.
Age
The applicant’s age is also extremely significant. Depending on the lender, borrowers should be between the age of 24 and 57 years for loans to be approved. Applying for a loan at or close to retirement age can be problematic.
Your Relationship With the Lender
Your eligibility increases if you are already a client of the lending company and have a healthy borrowing history or have an ongoing loan term.
In Conclusion
After considering your income, expenditures, and credit score, lenders may approve your Personal Loan application. Banks and NBFCs assess the maximum Personal Loan amount you can acquire using two different methods- The multiplier method and the fixed obligation to income ratio. The typical requirement for obtaining a Personal Loan is at least Rs.30,000 of net monthly income.
