Personal Loan

How Much Personal Loan Can I Get on My Salary?

13 Oct 2019 5 min read
Personal Loan: Know How Much Personal Loan Can I Get on My Salary - Afinoz

Well, this is the question most of us have in our mind. Some of us ask to our near and dear ones, and some of us try our hands at personal loan EMI calculators. Right. But is all that enough…Applying for a personal loan is easy, and you will be happy to know that an individual can avail up to ₹ 50 lakh if he/she has the income and repayment ability. The Personal loan amount can be up to 20 to 25 times your salary. Let’s discuss how this is possible and know other essential associated factors.

How is a personal loan calculated on your salary

Multiplier Method 

In this method, lenders apply a multiplier to the applicant’s net take-home salary to calculate his/her loan amount eligibility. Higher the salary and the more reputed company leads to the higher are the multiplier and the loan eligibility. Generally, lenders use a multiplier of 9 to 25, and these multipliers are defined for distinct levels of salary and the internal categorization of companies by the lender. Higher the reputation of the company to which an applicant belongs, higher will be the loan amount eligibility and lower the personal loan interest rate

For Example, Mr. X has a monthly take-home salary of Rs 30,000 with no other EMIs to pay. He works for an organization that falls in good category company as per the lender. In this scenario, the lender applies the multiplier of 20 to calculate his loan amount eligibility. A multiplier of 20, the loan amount Mr. X will be eligible for is Rs 6 Lakhs. This means Mr. X can get a loan amount of Rs. 6 Lakhs from the lender.

Fixed Obligation to Income Ratio (FOIR)

In this method, the loan amount eligibility is calculated based on maximum EMI or monthly instalments an applicant can service with regards to the net income after considering other fixed expenses such as rent and EMIs. Lenders generally accept up to 50% of the net income as EMI, existing fixed obligations and outstanding of a credit card. If the obligations exceed the lender’s norms, then the lender will either reduce the loan amount or will increase the repayment tenure. 

For Example, Mr. Y has a take-home salary of Rs. 40,000 and he requires taking a personal loan. He has no existing fixed obligations or EMIs to pay. The lender has a maximum FOIR requirement of 50%. Hence, in this case, it will lend an amount where maximum EMI is bounded to Rs.20,000 (50% of Mr. Y’s salary), which at the low rate of interest and long repayment tenure.  

In the same scenario, if Mr. Y has another home loan EMI of Rs. 10,000, then he will be eligible to take a personal loan of amount where his monthly EMI does not exceed Rs. 15,000. Here, Mr. A is eligible to recieve a maximum loan amount of Rs. 5.33 Lakh at the long repayment tenure and low rate of interest. 

Wait…there are many other factors associated with the approval of a personal loan on your salary. 

Your personal loan will depend on various factors like your income, company status, credit & payment history, existing relationship with the bank, and individual negotiation skills. 

Let’s take an example to understand in detail.

Case 1: Mr. X's monthly salary is Rs. 25,000 and he has applied for a personal loan in a prestigious bank for a term of 4 years. He got approval of Rs 6,25,000 for a personal loan. 

Case 2: Mr. Y's monthly salary is also Rs. 25,000 per month and he also applied in the same bank in which Mr. X applied for a personal loan for a term of 4 years. But he received approval of Rs 500000

Case 3: Mr. Z also earning Rs. 25,000 per month, he also applied in the same bank in which Mr. X and Mr. Y applied for a personal loan for a term of 4 years. But he has received approval of Rs 250000

Now you must be thinking that when in all the three cases applicant’s salary, and repayment tenure is same, then why they are eligible for the different loan amounts from the same bank. 

The answer is the status of their companies. 

Category A

The loan amount can be up to 25 times

Category B

The loan amount can be up to 20 times

Category C

The loan amount can be up to 15 times

Category D

The loan amount can be up to 10 times

Every lender has a list of companies which has been divided into different categories. The better and reputed company you are employed in, the higher the loan amount you are eligible for.

In addition to income, you need to focus on certain essential factors to make a winning personal loan application. 

Credit Score: Credit score is a factor that almost every lender looks before the loan approval. It is always better to have a good credit score when you apply for a personal loan. An ideal credit score to get a better loan offer is 750 and above. 

The table below will help you understand what a good credit score is.

Credit Score

Ratings

750 and above

Very Good

700-750

Good

650-700

Fair

550-650

Poor

550 and below

Bad

 Repayment Capacity: It is a significant parameter that hugely influences the approval of a personal loan. As the lenders want to be assured that the borrower can repay the loan without difficulty. If you have a stable income source, it will be easy for you to get personal loan approval. Salaried employees may have a better opportunity over here as they have a steady source of income. 

Debt-to-Income Ratio: The lenders calculate the debt to income ratio. Generally, if the debt is above 50% of your income, then you may get a lesser loan amount. Try to have a balanced debt to income ratio before applying for a loan.

Read here How to get a personal loan with a low CIBIL score