Personal Loan Eligibility Calculator

Being an unsecured loan, a personal loan requires no collateral. Lenders determine the eligibility of the applicants based on their age, credibility, income and other such factors. The lender may approve or reject a loan application based on these factors. To make it easier for the borrowers, most lenders usually have an online personal loan calculator to help them identify if they are eligible for a home loan or not. Just fill in the basic fields and find out the loan amount you are eligible for within seconds without visiting the lender’s branch.

Different lenders have different eligibility criteria, but some of these remain standard across banks and financial institutions:

• Age - 23-60 years
• Work Experience: Minimum 2 years of work experience with 1 year in the same company.
• Loan Tenure - 1 year - 7 years
• Profession: Salaried professions or business owners withdrawing a fixed income from their own company.

As a personal loan requires no collateral, banks have to rely solely on the borrowers’ credibility to determine their loan eligibility. Following are some of the factors that play an important role in determining a lender’s credibility.

Your Monthly Income

: The net monthly income (NMI) you draw is one of the most important factors that most lenders consider when approving or rejecting your loan application. While the minimum monthly income for loan eligibility is Rs 15,000 per month, an income above this level does not guarantee a loan. It depends majorly on your debt to income ratio. You can also club the income of your spouse or a relative and apply as a co-applicant to increase your chances of getting a loan. When using a personal loan EMI calculator, you can put in your income to find out the amount of loan you are eligible for.

Your Credit Score

: A credit score is a three-digit score, between 300 and 900, that defines your credibility to the lender. The score takes into account your past loans repayments, your credit card payments, your bill payments and other such things to define your score. A score above 700 is usually considered good.

Your Employment Status

: Another eligibility criterion that plays a crucial role in getting the loan application approved is the employment status. This includes a few factors such as

• The reputation of the company you work in: Lenders usually prefer applicants that work in big corporations or government organisations.
• Total work experience in the company: The odds work in your favour if the organisation has employed you for at least more than 1 year at the time of loan application and you have a total work experience of more than 2 years. If you’re applying as a director/owner of your own company, a minimum experience of 2 years in the company is usually considered good.

Your Age

: Lenders usually grant personal loans to applicants that are aged between 23 and 60 years of age. If you’re nearing 60, at the time of applying for a loan, it may have a negative effect.

Existing Relationship with the Lender

: If you already have an existing relationship with the lender in the form of a loan that is already running or you have bought a product, it may increase your eligibility. Don’t forget to check the box while determining your eligibility using a personal loan calculator.

The interest rates on the personal loan depend on the applicable rates at the time of applying for the loan, along with applicants credit score, debt-income ratio, and other factors. You can choose from two types of interest rates.

• Fixed Interest Rate

  : In this, the interest rate remains unchanged throughout the loan tenure. Thus, the EMI remains the same throughout the tenure.

• Floating Interest Rate

  : The interest rate may increase or decrease depending on the market conditions. Since the interest rates can change during the tenure, the EMI may also subsequently increase or decrease.

Another important point to consider when looking at the interest rate is how it’s calculated. There are two ways in which the interest rate might be calculated.

• Flat Rate Method

  : The interest is calculated on the total loan amount for the entire duration and added to the principal amount. The cumulative amount is then divided by the number of months of the loan tenure.

• Reducing Balance Method

  : In this, the interest is calculated on the remaining balance each month. With every EMI, a portion of it goes towards paying the interest and the rest towards the principal. As the principal reduces, so does the interest outgo.

Most lenders usually use the reducing balance method for interest calculation. It is essential to determine the total interest outgo before applying for a loan. Using the lender’s personal loan interest calculator will give you a clear idea of the total interest outgo on the loan amount based on the interest rate and the tenure.

Lenders use their own method to calculate personal loan eligibility. Thus, it is best to use the lender’s PL calculator when applying for a loan. Assuming all the eligibility criteria mentioned above are met, lenders may use two methods to determine the total loan amount that borrowers may be eligible for. These are:

• Debt to Income Ratio

  : This ratio is your total EMI payments in a month divided by the total monthly income. A debt to income ratio of more than 50% may not work in your favour when applying for a loan.

• Monthly Income Method

  : Sometimes, the lenders may also just determine an applicant’s eligibility based on their net income in a month. Typically, lenders grant loans of up to 30 times the monthly income of an individual. For example, if you have an income of 25,000 per month, you can be eligible for a personal loan of up to Rs 7Lakh approximately.

To know your EMI, it is best to use a personal loan EMI calculator. It will quickly give you the monthly EMI, total interest outgo and the total repayment amount once you fill in the loan amount, the tenure and the applicable interest rate. You can also opt for part pre-payment or full pre-payment of the loan once it completes a minimum duration set by the lender. Do note that you’ll have to pay pre-payment penalty if you wish to pre-pay before the tenure.