Applying for a personal loan is tedious these days. Being the most unsecured loan, both banking and non-banking financing institutions check for your loan eligibility. For those who are applying for the first time, it is not easier to understand the personal loan applicant eligibility criteria.
In case you apply without proper homework, you are likely to face rejections. Having knowledge about your creditworthiness is essential. It assists you to know the best possible and affordable loan options. If you face constant inquiries and denials, it impacts your credit score. This, in turn, might further lower all your chances of applying for a loan in the future.
How does a personal loan eligibility calculator help you?
If you know how to use a personal loan eligibility calculator, half of the work is simplified.
Several factors govern your eligibility to apply for a personal loan. To list a few are – credit score, the current status of income, continuity of income, outstanding loans, and so on. Out of all, repayment capacities are the most influential factors. Repayment capacity check is a process wherein your bank will check your credibility for repaying the sum that you borrowed.
Other factors which affect your personal loan eligibility are:
Geographic location: Your residential area impacts in determining your personal loan eligibility. Residents of metropolitan cities have an upper edge over people from rural areas.
Income: Your income status is the next thing to influence your loan application process. Higher is your income, the more large amount you are eligible to borrow from the bank. This is so as your bank is assured about your potential to repay the borrowed sum.
Existing credit: Your credit will be lowered for a new loan if you have outstanding loans on you.
Credit history: Personal loan eligibility is affected both by credit score and credit history. Both of them determine your creditworthiness, which impacts your personal loan eligibility. Your rate of interest, loan tenure, and amount are all co-dependent on these two factors. It is best if you maintain a credit score of 750.
All banking and non-banking institutions have their personalized calculators to facilitate you with the check of your eligibility for the loan application process.
Ways to calculate your personal loan eligibility:
There are two ways to calculate your personal loan eligibility – Multiplier Method and FOIR method.
Multiplier method:
Under this method, your financing institution will apply a multiplier to your entire take home salary. This multiplier functions as a representative of both your take-home salary and company’s profile. The higher is your take-home salary, and the more your company holds a market reputation, the higher will your multiplier turn out to be. This increases your loan eligibility.
FOIR Method:
Under FOIR or Fixed Obligation Income Ratio method, your banking institutions ask you to pay 50 to 75 percent of your net income as your loan EMI. This is calculated after you are done with your other fixed expenses. In situations where your obligations are found to exceed bank’s norms, it will either reduce your requested loan amount or introduce an increase in your loan repayment tenure.
However, with easy access to free online personal loan eligibility calculator, you can quickly check your own credit before approaching either banking or non-banking financing institution.