When assessing your eligibility for a personal loan, the financial institutions will typically use the multiplier technique, the fixed obligation income ratio, or a combination of these two methods. Here is a detailed discussion for each of the methods.
Multiplier method
To determine a borrower's eligibility for a personal loan, banks and other financial organisations frequently employ this technique. Under this technique, lender calculate the eligibility of personal loan on the basis of a predetermined multiple of the income. The approximate range of this multiple is between 10 to 28 times of the applicant’s net monthly salary. The multiplier increases the likelihood of receiving a larger loan at a lower interest rate if you work at a reputed company with a higher salary.
As an illustration, consider the question, "How much personal loan can I get on a Rs. 30,000 salary?" You can multiply your monthly earnings by 27 to determine the maximum sum you would be eligible for if you do not have any other EMIs. In this instance, it would be around Rs. 8 Lakhs with a 60-month repayment tenure.
The following table gives an idea about the maximum loan quantum one can be eligible for against a few monthly income figures:
Expected Eligible Loan amount for Different Salaries
Monthly salary | Loan amount |
Rs. 8,000 | Rs. 1.90 Lakhs |
Rs. 12,000 | Rs. 2.80 Lakhs |
Rs. 15,000 | Rs. 3.34 Lakhs |
Rs. 20,000 | Rs. 4.72 Lakhs |
Rs. 25,000 | Rs. 5.90 Lakhs |
Rs. 30,000 | Rs. 7.09 Lakhs |
Rs. 35,000 | Rs. 8.27 Lakhs |
Rs. 40,000 | Rs. 9.45 Lakhs |
Rs. 45,000 | Rs. 10.63 Lakhs |
Rs. 50,000 | Rs. 11.81 Lakhs |
Rs. 55,000 | Rs. 13.50 Lakhs |
Rs. 60,000 | Rs. 14.20 Lakhs |
Rs. 65,000 | Rs. 15.36 Lakhs |
Rs. 70,000 | Rs. 16.20 Lakhs |
Rs. 80,000 | Rs. 18.90 Lakhs |
Rs. 90,000 | Rs. 21.30 Lakhs |
Rs. 1,00,000 | Rs. 23.63 Lakhs |
The examples given above all presume that you do not currently have any monthly responsibilities. Please be aware that these are merely examples provided for your comprehension. In order to know the actual loan amount, you must contact your lending institution and ask for the same.
Fixed obligation income ratio
The highest amount of instalments you can make using your net income after paying for things like rent and EMIs is the basis for this method's calculation. Lenders often count between 50 and 75 percent of net revenue as instalments. Banks either extend the loan's term or lower the loan amount if your expenses are greater than this proportion.
Let's take a look at a personal loan for someone making Rs. 30,000. A personal loan of up to Rs. 5 Lakhs can often be obtained if you have monthly EMI of less than Rs. 8,000. On the other hand, if your monthly EMI is lower, say Rs. 4,000, you may be qualified for a personal loan up to Rs. 7 Lakhs or more, provided your credit score is strong and you want a loan with a 60 months repayment tenure.
Consider a few of the following options:
Salary | Ongoing EMI of Rs. 3,000 | Ongoing EMI of Rs. 5,000 | Ongoing EMI of Rs. 8,000 |
Rs. 20,000 | Rs. 4. 08 Lakhs | Rs. 3.60 Lakhs | Rs. 2.88 Lakhs |
Rs. 30,000 | Rs. 7.70 Lakhs | Rs. 6.00 Lakhs | Rs. 5.50 Lakhs |
Rs. 40,000 | Rs. 8.88 Lakhs | Rs. 8.40 Lakhs | Rs. 7.68 Lakhs |
Rs. 50,000 | Rs. 11.28 Lakhs | Rs. 10.80 Lakhs | Rs. 10.80 Lakhs |
Rs. 60,000 | Rs. 13. 68 Lakhs | Rs. 13.20 Lakhs | Rs. 12.48 Lakhs |
Use a personal loan eligibility calculator for precise results. Please be aware, however, that the calculator displays the results based on several variables provided by the user. Your actual loan eligibility is the result of many different things. But if you meet these requirements, using the personal loan eligibility calculator can give you a decent idea of what to expect when you apply. You can also calculate the EMI for the amount you wish to take as a personal loan through online EMI calculator.