The higher your salary, the more money you can get as a personal loan. Ideally, you should be eligible to get an amount that is 30 times your monthly salary. However, there are a few other factors, such as your credit score, the tenure of loan you prefer, and your Debt-to-Income ratio, that the lenders consider before approving your loan.
Personal Loan Eligibility Criteria
Since personal loans are unsecured loans, most banks and financial institutions have set a limit of 25 lakhs against them. However, there are certain conditions that you have to meet to get a personal loan:
- You need to be an employee of a public or private company that satisfies the basic minimum turnover condition
- Your age should be between 21 and 60 years
- You should be drawing a salary of at least Rs. 25,000 if you are a resident of Mumbai or Delhi. In other parts of India, the minimum salary for a personal loan is Rs. 20,000.
- You should have worked in the current company for at least 18 months
If you are a self-employed individual, you should have been in business for at least 5 years. Your loan will be gauged based on your profit after deducting tax.
Methods of Calculating Personal Loan
Companies choose various methods to calculate the amount of personal loan for salaried people. Here are some of the standard methods used:
The Multiplier Method
This is a simple and common method for calculating personal loan amounts. In this method, the net monthly income of an applicant is multiplied by a fixed number. This can range anywhere between 10 and 24, depending on the applicant’s monthly income and the lender’s discretion.
For instance, if you are drawing a monthly salary of Rs. 40,000, you can get a personal loan of Rs. 9,600,000 (40000 X 24), provided you don’t have any financial burden. The maximum loan amount that you can get through this method is 15 times your net monthly income.
The EMI / NMI Ratio Method
In this method, the proportion of income that goes into paying EMIs determines the personal loan amount. You can be eligible for a personal loan if your EMI/NMI ratio is between 50 and 55 per cent. To increase this loan amount you may want to extend your tenure or go for a lower interest rate.
Documents Required for Personal Loan
Personal loan for salaried people involves minimal papers and is free of hassles. You will only need to submit:
- Your salary slips for the past three months
- Your bank account statements for the last six months
- Your KYC documents such as your Aadhar Card, PAN Card, and Driving License
Interest Rate for Personal Loan
The interest rate calculated for personal loans varies from lender to lender. The interest depends on the borrower’s credit score, their monthly salary, the company they are working for, and their financial duties.
The interest rate on personal loans is generally higher than those on home or auto loans. However, here are a few things you can do, to get a personal loan at a lower interest rate:
Improve your Credit Score
A credit score of 750 and above is usually considered a good credit score when it comes to getting a personal loan at a lower interest. To improve your credit score, you should start clearing your debts and dues and make sure you don’t use more than 30 per cent of your credit limit. You should also make it a point to check for any errors in your credit report routinely and get them resolved.
Try increasing your credit limit, if possible, and keep a healthy mix of secured and unsecured loans. If you are a guarantee or co-signer for any other loan account, make sure it is repaid on time.
Pay Your Bills on Time
Clearing off your bills and credit card debts within time is crucial to get a personal loan at a lower rate of interest. If you are paying EMIs for any existing debts, make sure you pay them on time. If you have a good EMI repayment history, you have better chances of qualifying for other loans, in future. Also, you will be in a good position to work out better interest rates.
Compare Lenders and Grab Seasonal Offers
There are many online financial marketplaces where you can compare the interest rates offered by different lenders, before deciding on a particular loan to apply for. You can discuss it with your existing lender for a better interest rate, considering your pre-existing relationship. Some banks offer attractive personal loan schemes during the festive season. It might make sense to check these out if you can wait until such times.
Identify the Method Used to Calculate the Interest
Interest rates on personal loans differ depending on the method that your lender uses to calculate the total amount of interest payable. For instance, in a flat interest rate method, you will be paying the same amount of interest throughout the tenure of your loan. In a reducing interest rate method, the interest amount that you pay reduces month after month.
This is because the interest is calculated on the full loan amount in case of a flat interest rate. In the case of a reducing interest rate method, the interest is calculated on the remaining principal amount. So, if you avail of a personal loan at a flat interest rate, you may end up paying more interest than what you would pay for a personal loan with a reduced interest rate.
The Bottom Line
It may not be too difficult to get a personal loan if you are working in a good company and are drawing a high salary. However, it is always wiser to know the various aspects of the loan, such as the interest rate, the tenure, the loan amount, the processing fee, and prepayment charges if any, before you apply for one. Try Piramal Finance if you are looking for a personal loan at a lower interest rate.