You can’t deny the fact that life is unpredictable and it changes from time to time, sometimes giving us the joy and sometimes utter discomfort. Due to the lack of income, you would want your kids to be educated in India. But kids being kids can dream big and would like to get the degree from a prestigious institution overseas.
There can also be the demand from the kids to watch their favourite cartoon shows and other amusement programs in a high-definition LED Television. Even you would like to match the lifestyle of your peers by having the latest iPhone in the market. All these wishes can’t be ignored as life is given once and you should live it with zest.
To meet these, you would have to fall back on a Personal loan, which can be availed for almost all the purposes. But more important is to see how much loan you can command based on the income you earn. So, get ready to understand the crux of a personal loan with us march towards the fulfillment of your wishes.
What is Personal Loan All About?
A personal loan is a type of credit that can be made available to you to serve a large number of purposes, some of which can be travelling, marriage, education, medical contingencies, and others. It is an unsecured loan given by banks and other financial institutions without requiring any collaterals from your side. And given the fact it is unsecured, you may have to bear a slightly higher Personal loan interest rate compared to other loans. Typically, the interest rate ranges from 11%-25% per annum across lenders. Also, lenders levy processing fee, a one-time charge, at 1%-3% of the loan amount.
Banks Scrutinize Your Income
Needless to say that the most important factor that can be a make or break of your personal loan application is the earning you make every month. Why am I saying it? It’s because of the fact that the EMI, the short form of Equated Monthly Installment, comes to the equation. The EMI is nothing but a constituent of the interest and principal repayments towards a loan each month.
So, if your income is not able to deal with the pressure of the proposed EMI, your loan application could either be rejected or you be given a lower amount of loan from the bank. For example-State Bank of India (SBI) provides a personal loan upto 24 times of the net monthly income (NMI), at an interest rate of 11.90%-16.55% p.a. So if your NMI is ₹20,000, you could say a loan amount of upto ₹4,80,000 is waiting at your doorstep. This is the maximum you can get but not exactly the same. You can know what I mean to say, right below.
Personal Loan Eligibility Calculator
To understand this better, you need to be aware of the eligibility calculator that the bank uses to figure out the amount of personal loan that can be given to you. The calculator takes into account your income and savings to ascertain the amount of loan.
Example- You are a mechanical engineer bagging away a net salary of say₹35,000 and the savings you generate each month is ₹15,000. In the eyes of a bank, the savings can be used for the repayment of the EMIs. Firstly, a per lakh EMI calculation will be made by the bank. The EMI calculation is dependent on the loan amount, interest rate and the tenure of the loan. Suppose you want to apply for a personal loan at HDFC Bank whose interest rates range within 15.75%-20% per annum. The maximum loan tenure is 5 years. Taking all these into account, the per lakh EMI will be ₹2,419-2,649. The sum so arrived will be put in the formula shown below.
Loan Eligibility- ₹1,00,000 x savings/per lakh EMI
- ₹1,00,000 x 15,000/2,419=₹6,20,090 (Approx.)
- ₹1,00,000 x 15,000/2,649=₹5,66,251 (Approx.)
So, this is it, the answer to your long-standing query of how much Personal loan can be given based on your income. If the loan amount sanctioned is slightly lower, you can use a bit of saving, if any, and thus reduce your interest liability.
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