Today we will talk about how to calculate how much loan amount you are eligible for. We will talk about how different banks calculate loan eligibility and what are the different parameters which can directly affect your loan eligibility.
What is Loan Eligibility?
Loan eligibility implies how much money you get from a bank for purchase of your home or against a property you already own or for any other purpose. Your loan eligibility is calculated based on the formula which we discuss with you in this article.
How does the bank look at you at the time of sanctioning a loan?
To understand more about loan eligibility, let us think from a lender’s point of view for a minute. Think as if you are a lender and you are giving money to a person.
Major Factors Which Affect Your Loan Eligibility:
- Your monthly income:
First question you will ask a borrower – how much money can he pay as EMI every month. This depends upon his income and his expenses. You will also want to know how regular or sustainable the income flow is.
It is a simple fact that higher your monthly income more is the chance of your being easily able to pay a larger EMI. Since you also need to meet your regular living expenses, it is fair to say that you can pay only a portion of your income, and not your entire income, as EMI.
- Past credit history:
Your past loan repayment record and credit history also determine your loan eligibility. If a person has a bad credit card repayment record, then he/she is categorized as a high risk customer. Either he faces genuine hardship in being able to pay EMI or has been a willful defaulter. In either case, banks are quite wary of lending to such people.
- Age of the loan applicant:
Age of the loan applicant also affects loan eligibility. Banks have to ascertain that for how many years you can pay the EMI. A person in his 30’s can pay the loan for next 30 years, but a person who is in his 50’s will retire at 60 years and hence he has less than ten years to pay back his loan.
Profession of the loan applicant also determines his/her loan eligibility. Banks want to ascertain if the income flow is regular or not. Some professions such as software developer, doctors, banking jobs are eligible for a higher loan amount as compared to those people who are working in BPO sector.
- Your past relation with bank:
Many banks (especially PSU banks) look at your past relationship with the bank and decide your loan eligibility.
- Employer category:
All the major banks have categorize big companies into A, B, C categories and provide them different interest rates. So, employees of Cat A companies may be offered better interest rates as compared to others. You need to check about this information with the respective banks which matters a lot in the long-term.