Personal Loan Eligibility

Most banks and NBFCs consider two methods, the multiplier method and the EMI/NMI ratio, to calculate the applicant’s eligible personal loan amount.

Multiplier Method

In the multiplier method, an applicant’s Net Monthly Income (NMI) is multiplied by a set number to calculate an applicant’s personal loan amount eligibility. This multiple can be anywhere between 10 to 24 times the applicant’s NMI. For instance, SBI considers a 24-times NMI to calculate the applicant’s eligible loan amount. Therefore, the eligible loan amount for SBI Personal Loans would be Rs 12 lakh. However, the applicant’s existing EMIs and other debt obligations also play an important role in calculating your loan eligibility.

EMI/NMI Ratio

Apart from NMI, lenders consider the EMI/NMI Ratio. The EMI/NMI ratio indicates the proportion of the applicant’s net monthly income allocated towards repayment of their existing and proposed EMIs. Lenders usually prefer sanctioning personal loans to applicants having an EMI/NMI ratio of up to 50-55%.

Maintain a high credit score of 750 and above:

Having a higher credit score increases your chances of loan approval. Making timely EMI repayments or credit card dues and managing credit responsibly can help gradually improve your credit score.

Add a co-applicant:

Adding a co-applicant having higher monthly income can improve your personal loan eligibility as this reduces the lending risk for the lender.

Avoid frequent job changes:

Switching jobs too often reflects income instability, which increases the lender’s credit risk. Therefore, applicants must try to complete the minimum job criteria before applying for a personal loan.

Avoid multiple loan applications:

Making multiple personal loan applications within a short span of time can show you as a ‘credit hungry’ borrower, which may lead to loan rejections by some lenders and lower your credit score. Instead, visit online Paisabazaar and compare multiple personal loan offers from 30+ banks and NBFCs.