Calculating the amount your bank will give to you as personal loan or home loan isn’t as tough as it seems. It is actually that simple that you can calculate it sitting within the comfort of your four walls.
The amount of loan that your bank will agree to offer you depends on your monthly income. Since you will have to repay your loan in form of equated monthly installments, they will go from your monthly income. So the bank will be interested in knowing how much you earn in a month, so that your EMI can be calculated. Depending on the maximum number of years that you would be earning at least that much income, your loan amount will be calculated. The term of the loan allowed to you also depends upon your age, the internal policies of the banks and the directives issued by the Reserve Bank of India from time to time.
The eligibility calculation
In case you are a salaried employee, the bank will ask you for your net income. You are eligible for a personal loan up to 60 times of your net income per month. However, if you have existing liabilities in terms of outside borrowings and other loans whose EMIs are ongoing, the bank will deduct these from your income and calculate your ‘net available income’ of NAI. This NAI would be used to calculate the EMI that you would be able to pay to the bank and will offer you 60 times your net available income rather than the actual month income that you earn.
Let’s take the following example:
Let the following table be the breakup of your salary that you earn each month.
|Basic salary||32500||Provident fund||2000|
Let’s assume that you do not have any existing liabilities and loans and your net available income is the complete Rs 1 lakh that you earn after your company makes necessary deductions. However, there is an important point to be noted here-the bank does not include LTA (Leave travel allowance) and medical allowance while calculating your salary. This happens due to the simple reason that these are not incomes derived but reimbursement of expense that you have already incurred. Since these do not come to your hand and cannot be used for paying EMIs, they are not considered by the bank. So your net available income reduces to Rs 1,00,000 – Rs (9500 + 2200) = Rs 88300
Your loan eligibility therefore = 88,300 x 60 = Rs 52,98,000
In case of home loan, however most banks would restrict your EMI to 40-50% of your net monthly income. Which means in simple terms, you are eligible for a loan amount, of which the EMI not exceeding 50% of your net monthly income. In banks terms, the FOIR (Fixed Obligations to Income Ratio) should not exceed 40-50%. Fixed Obligations include all your liabilities including the applied loan and other existing loans.
There are ways you can increase your loan eligibility
1) Opt for longer tenures:
Your home loan or personal loan eligibility is calculated on basis of your income and not on basis of a fixed number of years within which you would be allowed to repay your loan. Ask the bank to give you the longest possible tenure. If you are still far away from your retirement, the banks will be more than willing to offer you longer tenures. The only point you have to be careful is the fact that with longer tenures increases your interest outgoing. If you are ready to take it on, you would be offered a larger loan amount
2) Club your income with your spouse/parents:
If your income is inadequate for paying EMIs for the amount of loan that you require, ask the bank for a joint loan. Take your loan in name of two people-you and your spouse/parent. This will increase your eligible net available income and will boost your repayment capability.
3) Clear existing liabilities before applying:
Take a practical look at how urgently you require the loan and what your existing liabilities are. Repaying these loans from other sources will greatly move up the total amount for your loan. However this is only possible if the outstanding amount is within your reach.
4) Include all perks that you get in your application:
When you include these, you suggest to the bank that your expenses of a certain kind are being shared by your employer, which pushes up your net available income. These perks may include performance linked bonus or additional pay for overtime, vehicle, fuel expenses, telephone and internet expenses, extra travelling expense and the like.
5) Look for step up loans (for home loans):
Ask whether your bank offers you small EMIs in the beginning and increase in EMIs with increase in income. Technically called step up loans, these loans offer you are higher loan amount assuming you would be able to pay larger EMIs in future.