A personal loan is a type of financial aid used by people who need money for personal reasons. The greatest differentiating aspect of a personal loan is that it can be utilized for any personal purpose with no restrictions on the final use.
There are several forms of loans, including home loans, vehicle loans, education loans, agricultural loans, and equipment loans. However, the ultimate purpose of these loans is limited. A personal loan does not have this restriction.
This function enables consumers to use loan funds for a number of purposes, including wedding expenses, vacation plans, house repairs, further education, and so on. In reality, many people seek a personal loan to pay off high-interest loans, such as credit card payments.
Personal loans are the most popular lending product on the market due to their flexibility in end use and rapid accessibility.
How do banks assess how much personal loan I’m eligible for?
The maximum personal loan amount a borrower is eligible for is mostly decided by their ability to repay the loan. The following are the two primary approaches that banks use to determine the maximum amount of personal loan that you are qualified for when you fill out the loan application:
The Fixed Income to Obligation Ratio (FOIR) Method focuses on the applicant’s total monthly payments required to repay current overdue debt. If an applicant’s FOIR exceeds 50% of their take-home pay, the personal loan application may be declined, or the loan amount approved may be less than you require.
Monthly income-based: Some lenders employ a multiplier based on the applicant’s net monthly income (NMI) to calculate the maximum loan amount. In such cases, the available amount of a personal loan can be up to 30 times the applicant’s NMI. If the loan amount sought exceeds this limit, the application will not be accepted for an unsecured personal loan.
Using the Personal Loan Eligibility Calculator: If you still have questions about your eligibility for a personal loan, try the Personal Loan Eligibility Calculator. Most lenders provide this eligibility calculator on their websites for the convenience of their borrowers.
The following are the inputs necessary for a Personal Loan eligibility calculator:
- Your Name
- Monthly Net Income
- Total years of job experience.
- Age.
- Your existing EMIs.
- Required payback tenure
Once you enter these facts, the calculator will calculate the amount of personal loan you are qualified for. This calculator allows you to determine your eligibility before asking for a loan, ensuring that you set appropriate expectations for your application and do not get rejected. It is most commonly used for online loan applications.
Credit score: You may be authorized by some lenders, but your credit score is low. They will be willing to consider additional aspects that may influence your future repayment possibilities, such as job stability, annual revenue, and the extent of your other liabilities. Your application may be approved if they consider that, based on other circumstances, you are capable of meeting your payback commitments. However, if you wish to qualify for a personal loan, aim for a score of 750 or above.