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It is important to understand how your salary influences your loan amount and implementing these valuable strategies can significantly impact your eligibility for the personal loan you desire, says Kamaljeet Rastogi.
Are you looking to secure a personal loan? Wondering how your monthly salary influences the loan amount you can obtain?
The answer to this question is far from straightforward, and it largely depends on various factors.
It's important to establish a baseline eligibility for these loans as it is intrinsically linked to your monthly income and different policies in use by the lenders. While some lenders may insist on a relatively high monthly income to approve your personal loan, others might be more lenient, even if your income falls on the lower end of the spectrum. And then some primarily base the maximum personal loan amount they're willing to offer on your monthly income.
Strategies for a Better Loan Amount
If you're aiming for a more favourable loan amount, there are essential strategies to consider. By implementing these strategies, one can create a more favourable borrowing experience and maximise loan eligibility:
1. Elevate Your Credit Score:
Your credit score plays a central role in determining your loan eligibility. Maintaining a strong credit score by consistently making on-time payments, reducing outstanding debts, and avoiding defaults can significantly increase your chances of securing a larger loan.
For quick approval of a personal loan, one is supposed to maintain a creditworthy CIBIL score between 720 and 750.
2. Reduce Existing Debts
Lenders scrutinise your debt-to-income ratio when evaluating your loan eligibility. Lowering your existing debt load can enhance your borrowing capacity.
Consider paying off outstanding loans or credit card debts before applying for a new loan.
3. Boost Your Income
It's no secret that a higher monthly income can positively influence your loan amount. Lenders are more confident in your ability to repay when you have a substantial income, potentially leading to a larger loan amount.
4. Maintain Employment Stability
Steady employment and a consistent job history can significantly strengthen your loan application. Lenders favour borrowers with stable employment records.
Avoid making significant job changes or career shifts shortly before applying for a loan.
5. Minimise Financial Obligations
Trimming your fixed monthly expenses can lower your Fixed Obligations to Income Ratio (FOIR), indicating a stronger ability to repay the loan. This, in turn, can improve your chances of securing a higher loan amount.
6. Consider Collateral or a Guarantor
Offering collateral or having a trusted guarantor can mitigate the lender's risk, potentially increasing your loan amount. Collateral provides security to the lender, while a guarantor offers additional assurance of loan repayment.
What methods are used by the lenders to sanction the loan amount?
When it comes to determining your eligibility for a higher loan amount, particularly with instant personal loans, lenders typically rely on two primary methods: The Multiplier Method and the Fixed Obligation Income Ratio (FOIR) method.
Multiplier Method
In the Multiplier Method, lenders take your monthly income and multiply it by a specific factor, usually around 27. This calculation is employed to determine the loan amount you can receive over 60-month tenure. If you have other financial obligations, such as existing loans or credit card debts, these are deducted from your monthly income before applying for the multiplier.
The precise multiplier used can vary based on various factors, including the lender's specific policies, creditworthiness, and employment stability. Some lenders may even offer higher multipliers to borrowers with exceptional credit profiles.
Fixed Obligation Income Ratio (FOIR) Method
The FOIR method, on the other hand, takes a detailed look at your financial obligations. Lenders assess your bank statements to ascertain the loan amount you're eligible for based on your existing financial commitments.
It's crucial to remember that the amount of personal loan you can access, determined by your salary, relies on whether the lender uses the multiplier method or the FOIR method. While your monthly income is undeniably significant in gauging your loan eligibility, other factors also come into play.
Regularly monitoring additional aspects like your credit score, existing financial obligations, and employment stability can further improve your loan amount, ensuring a seamless and successful borrowing experience.
It is important to understand how your salary influences your loan amount and implementing these valuable strategies can significantly impact your eligibility for the personal loan you desire.
Research about different lenders, assess their criteria, and work on improving your financial health to secure a more favourable loan amount tailored to your unique needs.
Your financial journey starts with your salary, but it doesn't end there -- it's a path filled with opportunities to make the most of your personal loan experience.
Kamaljeet Rastogi is the CEO of SahiBnk powered by Manipal Business Solutions.