what is gross income and its importance for personal loan

Gross Income: Impact on Personal Loan, Interest Calculation

May 09, 2024 • 441 views

Gross income refers to the total income earned by you before any deductions. It plays a crucial role in determining your financial stability and has a significant impact on Personal Loan approval. Read on to know how gross income affects your Personal Loan approval.

How Does Gross Income Affect Personal Loan Approval?

Here’s how gross income affects Personal Loan Approval:

1. Loan Eligibility

Gross income is one of the key factors lenders consider while assessing your eligibility for a Personal Loan. They analyse the risk of loan default. A higher gross income indicates a higher repayment capacity, increasing the chances of loan approval.

2. Loan Amount

Your gross income also affects the maximum loan amount that you qualify for. Lenders calculate the loan amount based on the percentage of gross income. A higher gross income allows a larger loan amount.

3. Interest Rate

Gross income influences the interest rate offered by lenders. A high gross income depicts low risk and the possibility of a good repayment capacity. Thus, a high gross income may allow low interest rates and favourable terms.

4. Repayment Terms

Lenders evaluate your gross income to determine the repayment terms of a Personal Loan. If you have a consistent and substantial gross income, you may be offered longer loan tenures or smaller monthly instalments. This can make loan repayment more manageable.

5. Debt-to-Income (DTI) Ratio

Gross income is a significant determinant of the debt-to-income (DTI) ratio. The DTI ratio measures the proportion of gross income that goes towards debt repayments. It indicates your financial health and repayment capacity. The lower the DTI ratio, the better the loan eligibility.

Also Read - What is Personal Loan? Things You Should Know

How is Personal Loan Interest Calculated?

Personal Loan interest is calculated using the following formula:

Interest = Principal x Interest Rate

For example, you have taken a Personal Loan of 6 Lakh at an interest rate of 13% p.a. for 60 months, the interest is calculated as:

Interest = 600000 x 0.13/12 = 6500/-

Also Read - Everything You Need to Know About GST on Loans

To Conclude

It is essential to understand gross income and how it affects your Personal Loan journey to secure favourable loan terms. Gross income plays a vital role in determining Personal Loan eligibility, amount, interest rates, and repayment terms. Lenders assess income to evaluate risk profile and determine if you are capable of handling debt.

If you have a high gross income and looking for quick funds, avail of a Personal Loan with Poonawalla Fincorp.

Frequently Asked Questions

1. Does gross income include all sources of income?

Yes, gross income encompasses all sources of income, including wages, salaries, bonuses, rental income, and dividends, before any deductions or taxes.

2. Can a higher gross income improve Personal Loan eligibility?

Yes, a higher gross income improves your Personal Loan eligibility. Higher gross income signifies a higher repayment capacity, increasing the chances of loan approval.

3. How does my gross income affect Personal Loan interest rates?

A higher gross income often leads to lower interest rates as lenders perceive individuals with higher incomes as less risky borrowers.

4. What is the significance of the debt-to-income (DTI) ratio?

The DTI ratio measures the proportion of gross income that goes towards debt repayments. A lower DTI ratio resulting from a higher income strengthens loan eligibility.

5. Why is a steady employment history important for Personal Loan interest rates?

Lenders prefer borrowers with a stable employment history as it demonstrates their ability to earn a regular income, potentially leading to more favourable interest rates.


We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Personal Loan disbursal is at the sole discretion of Poonawalla Fincorp.
*Terms and Conditions apply

poonawalla fincorp team

Poonawalla Fincorp Team

Our team of expert writers and editors are passionate about providing authentic and valuable information on finance. Our aim is to simplify financial and finance-related concepts. We strive to help our readers become more aware and empowered to make informed financial decisions.

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