A personal loan is a popular financial tool that can help you meet various needs regular needs. It allows you with multiple life events that cost a lot, such as a wedding, or a family vacation or so. But, the point to note is that the amount you borrow mainly depends on your income and your overall financial profile.
Hence, it’s important to know the eligibility criteria and the process the loan providers follow, to finalize the loan amount to issue. This overall helps you in planning or managing your finances appropriately.
How Does Your Income Determine Your Loan Eligibility?
The loan providers or lenders usually consider your monthly income and its regularity to check your repayment capacity. The higher the income, the higher loan eligibility, simple is that. This shows that you have the ability to repay your EMI (Equated Monthly Instalments), without having any burden or pressure. Lenders mostly prefer salaried professionals, because they have a stable income credited to their account every month. This shows them there’s no risk in it.
Fixed Obligations to Income Ratio (FOIR) also known as the income-to-EMI ratio, is one factor in determining the the loan amount. Most lenders expect this ratio to be under 40%-50%. Eg., if your monthly income is ₹50,000, your existing EMIs and proposed loan EMI combined not have to go above ₹25,000.
Factors Affecting the Maximum Loan Amount
1. Employment Type and Stability
Loan providers prefer a person who has stable jobs, even better when they are employed at stable and reputed companies. A salaried employee normally can apply for a higher loan amount than compared to someone who has a small-business income or who is self-employed and has an irregular income. Talking about giving loans to the self-employed, lenders scrutinize their monthly income and profitability when figuring out their loan eligibility.
2. Employer Reputation
Working for a well-known company can also help you a lot in getting the maximum loan amount. This also improves your credibility as a borrower. Employees who work for a reputed firm might also have extra benefits with relaxed eligibility criteria, which means they can apply for higher amounts of loans
3. Credit Score
Loan providers banks and all rely on your credit score to check your discipline and history concerning your financial condition. This covers your repayment ability and your past track record. A high credit score (750 or above) not only assures your chances of loan approval but also ve them confidence to apply for the higher loan amount. Same, the lower credit score means the lower borrowing capacity of the individual.
Being aware of these criteria can help you prepare the necessary documents and approach suitable lenders. Many lenders, including those accessible through Bajaj Markets, offer detailed eligibility guidelines to streamline the process. By reviewing these requirements beforehand, you can ensure a smoother loan application experience.
4. Debt-to-Income Ratio
The debt-to-income ratio is an important ratio that ensures that your future EMI won’t burden your budget. If you have any ongoing loans or it could be credit card payments pending, then your loan eligibility might be affected negatively.
5. Loan Tenure
The loan tenure means the number of installments of your loan and the duration of your loan repayment. You can choose the loan tenure, but it has a direct impact on the EMI amount. If you want to cut down on the EMI, then you can opt for a longer tenure. This way you can also increase your loan eligibility. But, this also means that you might be paying more as an interest
6. Age
The loan applicant’s age has a direct impact on a person’s loan eligibility and loan tenure. Younger borrowers have an upper hand, as they can apply for a loan with longer tenures and also they can apply for higher loan amounts. It’s because they have a longer earning year.
Typical Maximum Loan Amounts Based on Monthly Earnings
Point to remember that loan eligibility criteria are different and may change between the various loan providers. But, for an idea, here is the table to give the basic estimation of the maximum loan amount based on a person’s monthly income:
| Monthly Income (₹) | Maximum Loan Amount (₹) |
| 25,000 | 5,00,000 |
| 50,000 | 10,00,000 |
| 75,000 | 15,00,000 |
| 1,00,000 | 20,00,000 |
*Note: These figures are for just information and this data could be changed as per the lender, loan tenure, and many more eligibility factors that we discussed.
How to Improve Your Loan Eligibility?
Well, if you’re about to apply for a loan and worry about your loan eligibility, then here are some helpful strategies for you:
1. Clear Existing Debts
This is the first thing to do, if you have any ongoing debts or payments, clear them. This way you reduce your liability and improve your FOIR. Focus first on, repayment of small loan amounts or bills from credit cards and so on.
2. Opt for a Co-applicant
Add another person, as Co-applicant of the loan. This could be your spouse, parent, or someone close to you. This option is good if they have a stable income and you don’t, but you need a certain amount as a loan. If you’re applying for an instant personal loan, this one is a good option.
3. Choose a Longer Tenure
The longer tenure means you can cut down the EMI amount. For those who want to cut down their EMI burden from their monthly budget, this is the right option. This also increases your chance to apply and get approval for a higher loan.
4. Improve Your Credit Score
If you know that you might need a certain amount of money after some months or years, they focus on improving your credit score, that’s the important part. You could do so, by paying your bills on time, keeping your low credit utilization ratio, and not applying for multiple loans is also important to keep your credit profile stronger.
5. Provide Accurate Documentation
Honesty is important, right? So you have to be very clear and accurate while applying for a loan. Be sure to provide the complete and genuine documents, mostly your proof of income, identity, and location. Any mismatch or doubts in the paperwork could result in your loan rejection or delay.
Things to Consider Before Borrowing
It certainly feels exciting that you are going for a higher personal loan. But you first have to qualify for it and follow the important procedures, beforehand. Here are some things to keep in mind before you go for a loan.
1. Assess Your Needs
The loa isn’t available. But you have to borrow it only when you need it. You have to know that a higher loan amount means higher EMIs and you’ve to pay it on time, as well. This is an extra burden on your finances.
2. Check Interest Rates
Different lenders have different policies and interest rates when providing personal loans. So you can always find and compare the interest rates that suit you right and provide you with a loan that you feel comfortable taking.
3. Factor in Other Expenses
When you apply for a loan, you have to budget your finances. Check what are the monthly bills to be paid regularly and other debts, if any. You have to focus on your all daily expenses, and bills, before setting the amount of loan to take.
4. Emergency Fund
All need to have an emergency fund, this is to deal with unexpected expenses. You always have to have a backup plan for your regular expenses, before you apply for a loan.
Conclusion
No matter how important the loan amount is for you, you have to consider the connection between your income and loan eligibility. Because this is important for you to make the right financial decision especially when taking a loan.
You want to plan for a stable income, have low debts, or pay them first, and do important things to increase your credit score. Such are some ways you can increase the chance of getting a higher loan amount.
Remember considering your financial and personal criteria, you have to apply for a loan responsibly. You might have financial goals, but you also have to focus on your repayment capacity, because you have to repay the loan, as well.
