Personal Loan Eligibility

Personal Loan Eligibility

Personal loan is an unsecured loan, so lenders are not lending money to higher Chances of risk involvement client . Lender consider various factors before sanctioning personal loans. When you apply for a personal loan the first and foremost aspect that is  your ability to repay. The exact criteria vary from bank to bank. To be eligible for a Personal Loan, you must be:

Age

Personal loan borrower must fulfill the age criteria which is variable to bank to bank. Your age should be between 21 and 60 years at the time of loan maturity.

Income

A regular and good source of income is one of the major factors that a borrower can get higher loan amount. Individuals drawing a smaller salary will get a smaller loan. Likewise, individuals with a higher salary will get a bigger loan. To apply Personal loan excluding variable pay minimum Rs 15,000 net take home salary is require.

Company or Organization of the Borrower

The brand value of your Company can help you with your Personal Loan application. If the borrower is working in an MNC or the employer comes under top 500 companies, the loan eligibility, loan repayment tenure increases and will get a Personal Loans at best interest rates.

Job Stability

A good job stability is a very crucial aspect for personal loan consideration. A salaried person who has minimum 2 years of professional service with 1 year in the current profession can get a hassle-free loan. These numbers are flexible though, varying from bank to bank. Bank might be hesitant to grant a loan to a fresher.

Existing loans

Borrowers who already have existing loans are likely to get a smaller loan amount. An existing loan reduces the repayment capacity of the borrower. However, if the borrower repayments capacity and financial capacity is good to afford an additional loan, the banks might not lower the loan amount.

Relationship with the Bank

Having a healthy relationship with the banks can be helpful when applying for a Personal loan. Since there are chances that the borrower can get the higher loan amount at low-interest rates. It’s always good to first check Personal Loan interest rates at the bank you regularly transact with.

Credit or CIBIL Score:

The CIBIL Score plays a critical role in the loan application process. Whenever you apply for a loan, lenders check your CIBIL Score and Report. If the credit score is low, the lender may not even consider the application further and reject it at that point. If the credit score is high, which automatically help in availing you the maximum loan amount. Delays and defaults in paying EMIs for loans or credit cards will lower your eligibility. So, always try to maintain a good CIBIL score, i.e. 750 or above out of 900 to increase your loan eligibility.

Methods of Calculating Personal Loan Eligibility

  • Multiplier Method

This method helps you to calculate your loan amount that you are eligible for based on your net take home salary and company profile. Generally banks have multipliers Between 9 to 18 times of your net take home salary after current obligation.

  • Fixed Obligation Income Ratio

In this method, your loan amount eligibility is calculate on the basis of maximum EMI or monthly installments in respect to net income. Banks or NBFCs generally accept 40 – 70% of your net income as EMI, existing obligations and credit card outstanding. If the obligations exceed bank’s norms, then bank will either reduce your loan amount or will increase the tenure of your loan.

ELIGIBILITY – Case 1

  • Income :   50,000
  • Total EMI’s being paid :   10,000
  • EMI to Income Ration : 20% [10,000 / 50,000]
  • Rule of thumb EMI to Income Ratio: 50% [lenders assume you will need half salary for living expenses].
  • Total Borrowing Capacity : 50% *    50,000 =   25,000
  • Total EMI that individual can afford :  25,000 –   10,000 =   15,000
  • Basis this EMI, total additional loan that may be sanctioned at an interest rate of 10.99% over 5 years =   6,90.000
Loan application is likely to get approve

ELIGIBILITY – Case 2

  • Income :   1,00,000
  • Total EMI’s being paid :   50,000
  • EMI to Income Ration : 50% [50,000 / 1,00,000]
  • Rule of thumb EMI to Income Ratio: 50%
  • Total Borrowing Capacity : 50% *    1,00,000 =   50,000
  • Total EMI that individual can afford :    50,000 –   50,000 =   0
  • Basis this EMI, total additional loan that may be sanctioned at an interest rate of 10.99% over 5 years =   0
Loan application is likely to get reject

Case 1

  • Income :   50,000
  • Total EMI’s being paid :   10,000
  • EMI to Income Ration : 20% [10,000 / 50,000]
  • Rule of thumb EMI to Income Ratio: 50% [lenders assume you will need half salary for living expenses].
  • Total Borrowing Capacity : 50% *  50,000 =   25,000
  • Total Incremental EMI that individual can afford :  25,000 –   10,000 =   15,000
  • Basis this EMI, total additional loan that may be sactioned at an interest rate of 10% over 20 years =   15,00,000
Loan application is likely to get rejected

 

Case 2
  • Income :   1,00,000
  • Total EMI’s being paid :   50,000
  • EMI to Income Ration : 50% [50,000 / 1,00,000]
  • Rule of thumb EMI to Income Ratio: 50%
  • Total Borrowing Capacity : 50% *
      1,00,000 =   50,000
  • Total Incremental EMI that individual can afford :  50,000 –   50,000 =   0
  • Basis this EMI, total additional loan that may be sactioned at an interest rate of 10% over 20 years =   0
Loan application is likely to get rejected