We never know when an immediate need of money comes knocking on our lives. Be it an urgent repair of your house or a medical emergency; such needs tend to take away a big chunk of your hard-earned savings if you do not act smart. It is well-settled that a personal loan can be the perfect savior in such situations as it does not allow putting any undue stress on your regular financial budget.
But before zeroing on any personal loan, it is essential that you are sure about your personal loan eligibility. Having a thorough idea of personal loan eligibility will not only simplify your application process but will also help you to get the best personal loan offers.
However, the personal loan eligibility criteria vary for different lenders, and many factors come into play before lenders set up these criteria. In addition to individual lenders, financial service providers like Afinoz.com provides efficient tools named personal loan eligibility calculator, which can be of tremendous help for you to ascertain your eligibility for a personal loan.
How does a personal loan eligibility calculator work?
The personal loan eligibility calculator works on the basis of the following methods-
In this method, a multiplier is applied by the lender to the borrower's take-home salary in order to calculate his eligibility. This multiplier is, in fact, a function of his organizational profile and take-home salary. If the borrower works for a reputed company and earns a hefty salary, the multiplier will be high enough to impact his loan eligibility favorably. It will also help the borrower to get the best personal loan offers too.
FOIR or Fixed Obligation to Income Ratio method
Here, the lender considers the net income of the borrower and takes into account the maximum EMI amount he can afford about his income. The lender also looks into other fixed expenses of the borrower such as his other EMIs and rents. Usually, it is acceptable for a lender that 50% to 65% of the monthly income of the borrower is consumed by EMIs, credit card payments or other fixed obligations. If the percentage of such fixed obligations exceed further, the lender may either decide to reduce his loan amount or may increase the tenure and reduce the effective EMI amount. Some lenders may practice a bit of leniency if a borrower has high affordable income.
The following illustration will make it clearer for you-
Asish works as a senior manager in HCL Limited and draws a take-home salary of Rs 50,000. He has not fixed obligations/EMIs to pay either. He wants to avail a personal loan from a certain lender which has a maximum FOIR criterion of 50%. Therefore, the lender can lend Asish a maximum loan amount so that his EMI is limited to Rs 25,000, which is 50% of his monthly take-home salary. As per this calculation and with an interest rate of 10.99%, the lender can approve a maximum loan amount of Rs 11.50 lakhs to Mr. Asish for a maximum tenure of 5 years. Now, if Mr Asish had an existing loan EMI of Rs 10,000 to pay every month, he will be eligible to avail a personal loan with the EMI not exceeding Rs 15,000 only. Therefore, in this scenario, the lender will recalculate his eligibility and would approve him a maximum personal loan amount of Rs 4.60 lakhs at the rate of 10.99% rate of interest and for a maximum loan tenure of 5 years.
As a usual practice, lenders calculate the eligibility of a borrower with both the methods and will approve the lower of the two loan amounts calculated by both these methods.
Factors that influence personal loan eligibility
The below-mentioned factors are usually taken into consideration by a personal loan eligibility calculator-
- The income of the borrower-Perhaps, it’s the most important factor for a lender to calculate your personal loan eligibility. The higher is your income, the higher is the loan amount you are eligible for. Personal loans being of unsecured (mostly) type, the lenders would definitely look for some sort of an assurance about your repayment ability. A higher income will project you as an individual with an excellent repayment capability.
- Housing situation- The housing situation of a borrower plays another important part in ascertaining his loan eligibility. His eligibility will be impacted positively if he stays in his own house rather than someone who stays in a rented house. The reason being, if he lives in a rented house, he will need to pay rents. The rental expense every month will lower his disposable income and, in turn, will reduce his repayment capacity.
- Company the borrower works for- The company a loan seeker is currently working for can also influence his personal loan eligibility. Working for a stable and renowned organisation will make the borrower a safe proposition for the lender in terms of repayment capability and hence, the lender will not hesitate to approve a personal loan to him at the best rates applicable.
- Place of residence the borrower- The city/area the borrower lives in is an important criterion for a lender to assess his eligibility for a personal loan. Lenders maintain different eligibility criteria for persons living in metros, semi-urban and rural areas.
- Credit History- The current credit score and previous credit score of the borrower will have an essential effect on his loan eligibility. A credit score in the range of 700 or above is generally considered as excellent and will boost the chances of getting his desired personal loan approved. It may also help him to grab the best interest rates and the loan amount he requires.
- Current credit situation-If the borrower has to pay a big chunk of his monthly income to repay his existing loan EMIs/credit card payments, his chances of availing a new loan will be lower than someone with no existing credit to repay.
How to increase personal loan eligibility?
The following tips would help you to a great extent to boost your personal loan eligibility.
Check your debt to income ratio
DTI or your debt to income ratio conveys to a lender whether you are in a position to repay the EMI in time every month and how responsible you are in handling money. A high DTI percentage shows you are consuming a more significant chunk of your income to pay existing debts. Hence, you should check your DTI, and if it’s found to be over 43%, you may consider paying off some of your debts. It will do a world of good towards improving your personal loan eligibility.
Apply only for the personal loan amount you need
Assess your loan requirement correctly before you apply for a personal loan. It is imperative that you should be sure of your repayment capacity. Do not opt for a loan amount beyond your affordable range. You can use accurate online tools such as the Afinoz personal loan eligibility calculator which can give you a complete understanding of your financial position. It will assist you in availing the exact personal loan amount that best suits your financial needs and matches your affordability. Using the personal loan eligibility calculator at Afinoz is completely free.
Check your credit score from time to time and take adequate measures to improve it
Get a copy of your credit report from any of the premier credit bureaus to verify your credit score and rectify errors, if any. Make continuous efforts to improve your credit scores (such as paying EMIs on time, paying off debts fast and so on).
The bottom line:
Apply for the best personal loans on the Afinoz online platform. It can help you sort out any issues related to your personal loan eligibility. The online personal loan eligibility calculator at Afinoz considers all the factors that affect loan eligibility and assesses your eligibility for your desired personal loan. Moreover, all the financial services at Afinoz can be availed free of cost.