How Much of a Personal Loan Can I Get on My Salary in India?

How Your Salary Determines Personal Loan Eligibility

When you need funds, a Personal Loan can be a convenient and quick solution. However, one of the most common questions that arises is: How much Personal Loan can I get on my salary?

The amount you can borrow largely depends on several factors, including your monthly income, existing liabilities, credit score, and the lender's policies. Understanding the methods used by banks to calculate your loan eligibility is crucial to making an informed decision.

Methods to Calculate Personal Loan Amounts

Lenders in India typically use two primary methods to determine the Personal Loan limit for borrowers: the multiplier method and the fixed obligation income ratio (FOIR) method. Both methods are designed to assess how much loan you can comfortably repay without straining your finances.

Multiplier Method

Lenders often use a simple calculation to estimate your loan eligibility: the multiplier method. This involves multiplying your net monthly income by a specific factor determined by the lender.

Here's how it works:

• Determine Your Net Monthly Income: Calculate your take-home salary after deductions like taxes and EPF.
• Apply the Multiplier: Lenders use a multiplier, typically ranging from 10 to 30, based on your creditworthiness and income stability. Multiply your net monthly income by this factor to estimate your potential loan amount.

For example: If your net monthly income is Rs. 50,000 and the lender applies a multiplier of 15, your potential loan amount would be ₹ 7,50,000 (Rs. 50,000 x 15).
This calculation gives you a general idea of how much Personal Loan can you get from a bank using the multiplier method.

Fixed Obligation Income Ratio (FOIR) Method

The FOIR method is another commonly used approach to the question ‘how much I can get as a loan from the Bank?’ This method considers your existing financial obligations, such as ongoing EMIs, rent and other fixed expenses, to assess how much of your income is available for new loan repayments.

How the FOIR Method Works:

• Calculate Your Fixed Obligations: Fixed obligations include existing loan EMIs, credit card payments, rent, and any other regular financial commitments.
• Determine Your Available Income: Subtract your fixed obligations from your net monthly income to determine how much income is available to repay a new loan.
• Apply the FOIR Percentage: Lenders prefer that your total obligations, including the new loan EMI, not exceed 50% to 60% of your net monthly income. This is known as the FOIR percentage.
• Calculate the Eligible Loan Amount: Based on the available income and FOIR percentage, the lender calculates the maximum EMI you can afford and then determines the loan amount accordingly.

For example, if your net monthly income is ₹ 60,000, and your existing obligations are ₹ 20,000, the available income is ₹ 40,000. If the lender sets a FOIR of 50%, the maximum EMI you can afford is ₹ 30,000. The lender then calculates the loan amount based on this EMI and the loan tenure.

How These Methods Affect Your Loan Eligibility

The multiplier and FOIR methods ensure that the loan amount you offer is within your repayment capacity. Lenders use these methods to minimise the risk of default by ensuring that borrowers do not take on more debt than they can handle. Understanding these methods gives you a clearer picture of how much Personal Loan can you get on my salary and helps you plan your finances better.

Factors Influencing Your Personal Loan Eligibility

While the methods described above provide a framework for calculating your Personal Loan limit, several factors can influence the final loan amount you are offered.

• Credit Score
  Your credit score is one of the most critical factors in determining how much Personal Loan will you get for my salary. A high credit score indicates good creditworthiness, making lenders more likely to offer a higher loan amount with favourable terms. Conversely, a low credit score may reduce your loan eligibility or result in higher interest rates.
• Employment Stability
  Lenders prefer borrowers with stable employment, which indicates a steady income flow. If you have been employed with the same company for several years or work in a reputable organisation, you may be eligible for a higher loan amount.
• Age
  Your age plays a role in determining how much loan you can get from the bank. Younger borrowers, particularly those in their 20s and 30s, are often eligible for higher loan amounts due to their longer earning potential. Older borrowers nearing retirement may face restrictions on the loan tenure and amount.
• Existing Liabilities
  Existing financial commitments such as home loans, car loans, or credit card debt can reduce your loan eligibility. Lenders consider these obligations when calculating your Personal Loan limit to ensure you do not overextend your finances.
• Location
  The city or region you live in can also impact how much Personal Loan can you get. Lenders may offer different loan amounts and terms based on the cost of living in your area. Borrowers in metropolitan areas may be eligible for higher loan amounts compared to those in smaller towns or rural areas.
• Loan Tenure
  The tenure of the loan affects the EMI and, consequently, the loan amount you are eligible for. Longer tenures result in lower EMIs, potentially increasing the loan amount you can borrow. However, this also means paying more interest over the life of the loan.

How much of a Personal Loan can I get on different Salaries?

To give you a clearer idea of how much Personal Loan can I get on my salary, let's look at some examples based on different salary brackets using the multiplier method.

Conclusion

Whether you need funds for a significant purchase, home renovation, or any other purpose, knowing your eligibility helps you confidently navigate the loan application process.

You can choose L&T Finance to get a Personal Loan of up to ₹ 15 Lakh @ 11%* p.a. The loan can be used for many purposes including medical expenses, home renovation, travel, or debt consolidation. You can easily repay the loan in simple EMIs ranging up to 60 months.