Applying for a personal loan can feel like a big step, especially when you are not sure how much you can actually borrow. The good news is that lenders usually follow a clear process to determine how much loan amount you qualify for. By understanding the basics, you can plan your finances better and improve your chances of approval. Let’s explore how your salary and credit score play a key role when you plan to get personal loan support for your needs.
Understanding the link between income and eligibility
Your income is one of the most important factors that lenders consider before approving a loan. Simply put, the higher your salary, the greater your repayment capacity, and hence, the higher your loan eligibility. Lenders usually calculate your debt-to-income ratio to see how much of your income goes towards existing debts. If your monthly salary is Rs. 50,000 and your total EMIs amount to Rs. 20,000, your ratio stands at 40%. Ideally, lenders prefer this figure to be below 50%.
Apart from your monthly income, they also look at other factors like job stability, company reputation, and the nature of your employment. Salaried employees with consistent income have a better chance of getting approved compared to those with irregular income patterns.
How your credit score impacts approval
Your credit score acts as your financial report card. It tells the lender how responsibly you have managed loans or credit cards in the past. A high score, usually above 650, signal’s reliability and financial discipline. This can help you secure better interest rates and higher loan amounts.
On the other hand, if your score is below 700, lenders may either offer you a smaller amount or charge a higher interest rate to cover the risk. Maintaining timely payments, keeping your credit utilisation under 30%, and not applying for multiple loans at once are some ways to boost your score.
Steps to calculate your personal loan eligibility
You don’t need to be a finance expert to estimate how much you can borrow. You can calculate personal loan eligibility using online calculators available on most financial websites. These tools consider your salary, existing EMIs, age, location, and loan tenure to give you an approximate figure.
For instance, if you earn Rs. 60,000 per month, have no other loans, and apply for a 5-year tenure, you might be eligible for a loan of around Rs. 10 lakh. The actual figure can vary depending on the lender’s policies and your credit profile.
Tips to increase your loan eligibility
If the amount you qualify for seems lower than expected, you can take a few steps to improve it. Start by repaying any existing debts to free up your income. Next, try to maintain a healthy credit score by paying EMIs and bills on time. You can also choose a longer tenure to reduce your monthly instalments, which can make your application more favourable.
Lastly, some lenders allow you to apply jointly with a co-applicant, like a spouse or parent, to boost your combined income and overall eligibility.
The takeaway
Understanding how your salary and credit score affect your loan eligibility can make the borrowing process smoother. When you apply for personal loan options that match your repayment ability, you avoid unnecessary rejections and maintain a good financial record.
Take time to check your score, calculate your eligibility, and compare offers before applying. It’s a simple way to make sure your personal loan fits comfortably within your budget and helps you achieve your goals without financial stress, while also improving your chances of securing better loan terms, lower interest rates, and higher approval amounts in the future.
