How Much Personal Loan Can You Take On Your Salary?

Personal loans are unsecured loans offered by banks and financial institutions that help you finance your requirements and help you deal with the uncertainties of life. People commonly avail of personal loans to finance education, marriage, health expenses etc.  According to data provided by the Reserve Bank of India, the amount of money borrowed in the form of personal loans has increased sharply in the past couple of years. Personal loan borrowings stood at Rs. 19.33 lakh crore as on June 2018 as compared to Rs. 5.89 lakh crore in 2010.  This is because personal loans do not require the applicant to provide any collateral such as property or gold.

How Much Personal Loan Can I Get?

When thinking about taking out a loan the first question in your mind is - How much loan can I get? Other than the key question of maximum personal loan, it is also a matter of clearing all the required eligibility criteria.

The eligibility criteria differ for salaried as well as self-employed individuals. The eligibility criteria for applying for a personal loan is as follows:

• The applicant must be an employee of a private or a public enterprise with a basic minimum turnover as per the company policy.
• The applicant’s age must range between 21 to 60 years.
• The income should be at least Rs. 25,000 in Mumbai and Delhi and Rs. 20,000 in other parts of India.
• A self-employed person can avail of a loan calculated on the profit after tax based on the industry and should be in business for a minimum of 5 years.
• The applicant should have a minimum of 1-year experience and 6 months in the present company.

How Can I Check My Eligibility for a Personal Loan?

Prior to applying for a loan, it is advisable to work on factors that can increase the chance of your loan being approved. Your loan eligibility is calculated based on several factors that include your income, age, repayment capacity and other factors. You can also use a personal loan eligibility calculator to avail an estimate of the maximum loan amount and the different offers you are eligible for.

Follow a few simple steps using a personal loan eligibility calculator to receive an estimate of the loan amount, offers available and even receive a loan approval post uploading the relevant documents.

• Enter your location.
• Enter your age and date of birth. You require to be between 21-60 years of age to avail a loan.
• Enter your monthly income in case you are a salaried professional. Self-employed professionals are required to enter profit after tax.
• Provide details of all your current EMIs that include loans, credit card bills etc.
• You will obtain a tentative amount of the loan you are eligible for. You can modify the rate of interest and tenure as per your requirements.

You have the option of calculating the exact loan amount you are eligible for by providing the additional details required. Next, using the personal loan EMI calculator, you can

• Enter the amount under “Loan amount”
• Set an interest rate
• Next, vary the loan tenure to check how the EMI will change depending on the number of months you select.

Must Read: How To Choose A Personal Loan?

The following methods are used to calculate personal loan eligibility:

Multiplier Method

This is a popular method used by banks and financial institutions to calculate personal loan eligibility. The net salary of the borrower is multiplied with any number generally between 9 and 27.  Usually, the multipliers are applied based on the salary of the individual and the categorization of companies. The higher the salary and the better the reputation of the company, the higher the multiplier and the greater the chance of availing a higher loan amount at a lower rate of interest.

Fixed Obligation Income Ratio

This method is calculated based on the maximum instalments you can honour with your net income post expenses like rent, EMIs, etc. In most cases, banks consider approximately 50-75% of the net income as instalments. In case your expenses exceed this percentage, banks either increase the tenure of the loan or reduce the amount sanctioned.

What Documents Do I Require to Submit?

The paper-work required to apply for a personal loan for salaried individuals is usually minimal and hassle-free. The documents required are as follows:

• Past 3 months’ salary slips.
• Last 6 months bank account statements
• KYC documents that include PAN and AADHAR card, driver’s license etc.

What are the Interest Rates offered by Personal Loan providers?

Loan providers offer personal loans at attractive rates based on your credit history, requirement and other factors. Lenders also charge processing charges in addition to the interest and foreclosure charges in case the loan is prepaid. Given below is a summary of Fullerton India’s personal loan interest rates and charges.

Must Read: How to Check CIBIL Score For Personal Loan?

How Can I Improve My Eligibility for a Personal Loan?

It is always a good idea to work on your eligibility a couple of months before applying for a loan. Here are a couple of measures to improve your eligibility for a loan:

• Pay off your existing debts that include credit cards and loans.
• Avoid applying for more than one loan at a time.
• Work on building a high credit score.
• Ensure you have the required documentation - such as PAN, Aadhaar, valid address proofs, salary slips, bank statements, etc.

It is important to evaluate your requirements carefully before applying for a loan taking into consideration your requirements. Make yourself aware of the rules and regulations and make sure to honour the payments since this goes a long way in ensuring sound financial health.