Banks and financial institutions provide personal loans to help meet personal financial goals, such as organizing a dream wedding, planning an exotic vacation, or clearing medical emergency expenses. A common question in the minds of most borrowers is - how much personal loan can I get? While there is no standard formula to assess your eligibility for a personal loan, lenders consider various factors to determine the amount you can avail of as a personal loan.
In the following sections, you will find all the necessary information about personal loans and the amount banks will approve based on your salary.
Personal loans are unsecured loans and one of the easier loans to get. They ensure that you have the required funds when you need them. Some of the common uses of personal loan include health expenses, wedding, education, vacation, etc. Since this financing option is unsecured, lenders do not ask you to pledge any asset as security for the loan. The interest rate for such unsecured loans is comparatively higher than secured loans.
Applying for a personal loan is easy. But, it can be challenging to get the loan approved and sanctioned. The answer to how much personal loan can I get depends on a mix of factors. The most vital ones are your monthly salary and credit score. Your monthly income is given more priority because it lets lenders understand your ability to repay the EMIs on time, thus ruling out the risk of default.
Before applying for a Personal Loan, every individual is worried about the amount that the lender will sanction, especially if your primary source of income is salary then you'd be always bothered by questions like "what is the minimum salary for Personal Loan?" or "what are the criteria for low salary Personal Loan?" etc.
Apart from the vital question of minimum or maximum Personal Loan one can avail of, it is crucial to understand all the required eligibility criteria. It differs for self-employed and salaried individuals. For a Personal Loan, the essential eligibility criteria are as follows:
Low salary Personal Loan is difficult to obtain if you do not meet the aforementioned eligibility criteria. For example, if you have a monthly salary of ?18000, you will fall below the minimum criteria, implying that obtaining a Personal Loan salary of less than 20000 is difficult. Lenders use two methods to calculate your Personal Loan eligibility. These methods are called the Multiplier Method and Fixed Obligation Income Ratio.
In this method, the bank inquires about your monthly income. Then, it multiplies the amount by 27 and sanctions a loan for a period of 60 months. If you have a higher salary and the reputation of the company you are working with is good, you have the chance of availing of a higher loan amount at a lower interest rate. Here, the bank can use a higher multiplier. Your financial obligations are reduced from your monthly income before multiplying them by 27.
This table looks at the expected personal loan amount on standard salary figures.
|Monthly Salary (Rs.)||Eligible Personal Loan Amount (Rs.)|
By looking at the above figures, let us take an example if your monthly salary is ?20,000. Then here, using Multiplier Method, a Personal Loan for salary 20000 will be ?5,40,000. If your salary is below ?20000, then in that case, it shall fall below the minimum salary for Personal Loan.
Also Read :- How to get Personal Loan without Salary Slip?
Fixed Obligation Income Ratio
In this method, the amount of loan you are eligible for depends on your financial obligations. The lender assesses your bank statements to understand your monthly expenses before determining the loan amount to sanction. These monthly expenses include rent, EMIs, etc. Generally, lenders factor in around 50% to 75% of the net income as installments. If you have more than this percentage of expenses, the lender will either increase the loan tenure or lower the sanctioned amount.
Factors affecting personal loan eligibility
There is no collateral requirement in personal loans. Consequently, banks can rely only on the borrower’s credibility to determine the borrower's eligibility. Some factors that play a vital role in assessing the individual’s credibility are shared below.
1. Monthly income
One of the most vital factors that lenders consider before approving a Personal Loan application is the applicant's monthly income. As we learned above, obtaining a Personal Loan for salary less than 20000 or Personal Loan for salary 20000 is a bit difficult, and it would be in your favour if you have a salary higher than that. However, that is not the only criteria, and an income above ?20,000 does not guarantee a loan. Lenders also evaluate your debt-to-income ratio, and the amount of money you require to meet your financial obligations.To increase your chances of getting a loan approved, you can combine your spouse's income and apply as a co-applicant. Thus, this will help you in obtaining your low salary Personal Loan.
Enter your income in the Personal Loan EMI calculator to view the amount of loan you are eligible for.
2. Credit score
A credit information company like CIBIL provides a three-digit credit score to every individual. This score is between 300 and 900. It helps the lender understand your credibility. The calculation of the score depends on your past loan repayments, your bill payments, your credit card payments, and more. If you have been paying all your dues on time, you will enjoy a high credit score, increasing your chances of getting a loan approved. Having a score above 700 is good.
The applicant's age is also of crucial importance. Lenders prefer to sanction loans to individuals between roughly 22 and 58 years of age, varying from lender to lender. An individual nearing 60 years of age can negatively affect applying for a loan.
4. Employment status
Lenders look at your employment status when deciding whether they should accept or reject your loan application. They assess the reputation of the company you work with. If you are working in a government organization or a big corporation, you have the chance of getting a higher loan amount. Your total work experience in the company also matters. If you have been working in the company for more than a year at the time of the application, the odds work in your favor.
5. Relationship with the lending institution
If you are an existing customer with the bank and have purchased a product or have an ongoing loan, your eligibility improves.
The process to apply for a personal loan is simple and hassle-free. You require minimal documentation. Certain banks and financial institutions let you apply online by filling out the online application form and uploading soft copies of the required documents. The documents you need to submit with your application form include:
A personal loan is an unsecured loan that lenders sanction after considering your income, expenses, and credit score. Banks use two methods to calculate how much personal loan you can get. These methods are the Multiplier method and Fixed Obligation Income Ratio. Generally, the eligibility criteria for a personal loan is an income of at least Rs. 20,000.
How magical was the day when you discovered your career path? After a lot of research, putting in so much hard work, late nights, your heart and soul, you have become what you are today.