What amount of funds can I borrow based on my salary?

The need for funds to meet your aspirations is recurring, and applying for a loan seems like the most feasible option, especially if you are employed on a salary. You may require money to deal with a medical emergency, fund your child's international education, or pay for hefty wedding-related expenses. The best option in such cases is availing a personal salary loan. This loan can be obtained with just a few taps and has a competitive interest rate. But the question here is how much money on loan you can borrow based on your salary. Let's find out the answer in this post.
 

How Much Money can I Borrow Through a Personal Loan?

Before deciding on this point, the lender expects you to meet the basic eligibility requirements for loan approval. If you are a salaried employee, you must meet the following conditions.

Parameters	Description
Citizenship	Resident Indian
Minimum age	21 years
Maximum age	58 years
Work experience	At least six months with the present employer
Monthly income	Rs 15,000
Documents	KYC proof Income certificate Job continuity proof Passport size photograph

 
Once you meet the above criteria, the lender approves you for loan and proceeds to the next step, which is determining the amount you qualify for using the multiplier method.
 

What is the Multiplier Method to Determine the Personal Loan Limit? 

This is the standard method used by financial institutions to determine loan amounts. Most financial institutions will typically lend 15 to 30 times your monthly income. If you earn a high salary and work for a reputable company, the higher multiplier will be used when performing your credit appraisal.
 
Assume you work for a start-up company and earn Rs 15,000 per month. The lender considers you a risky borrower and categorises you with a multiplier of 15. In this case, the maximum loan amount you are eligible for is Rs 2,25,000, with a repayment period of 60 months.
 
The table below shows the maximum expected loan amount based on a multiplier of 15.
 

Monthly Salary	Expected Loan Amount
Rs 15,000	Rs 2,25,000
Rs 20,000	Rs 3,00,000
Rs 25,000	Rs 3,75,000
Rs 30,000	Rs 4,50,000

 
A personal salary loan is available for the maximum value of Rs 5,00,000. It means that having a monthly income of Rs 50,000 does not mean that you will be approved for a loan over Rs 5 lakhs.
 

Other Factors Deciding Limit on a Personal Loan

Whether it is related to your loan approval or determining the personal loan amount, a variety of factors come into play. These are –
 

1. FOIR

   FOIR stands for fixed obligation income ratio. It assists the lender in determining how much of your income is going toward debt repayment and other vital expenses like insurance premiums, child education fees, and so on. 
    
   Lenders will usually approve you for a loan if this ratio is between 50 and 75%. However, keep in mind that the higher the FOIR, the lower the amount you qualify for.
    
   You can calculate this ratio using the following formula.
    
   FOIR = (Total Monthly EMI + Other Fixed Expenses) ÷ (Monthly Salary)
    

2. Credit report

   A credit report is a record of all your current and previous debts. It informs the lenders about how you handled your previous debts and how many missed EMIs and loan defaults occurred in the past. In the event your report reveals several hard inquiries, loan settlement cases, and several missed debt payments, your application will be rejected, or you will be approved for a low-interest loan regardless of your monthly income.
    

3. Employer's reputation

   Financial institutions typically consider approving large loans to applicants who work for government agencies, multinational corporations, or public sector units. The reason is job security and timely salary credit. However, if you work for a start-up that pays you Rs 1 lakh but there is no fixed date in the month when the salary is credited to your account, the lender will only sanction a small amount if you are approved for a loan.
    

4. Age

   Age is another vital aspect that decides the personal loan limit for your profile. If you are over 55 years of age and are nearing retirement, the lender might not take a risk approving you for a large amount of loan. Post-retirement, most people lose their earning potential and are likely to default on their debts if they do not have a backup repayment plan.

Also Read: 6 Foolproof Tips That Can improve Your Personal Loan Application

To conclude 

In order to get approved for the maximum loan amount, you must assess your loan requirements and repayment plan first. Next, work on improving your credit score. Begin by reviewing your credit report and resolve any discrepancies that are hampering your credit score. If you have previously defaulted on any loans, try to clear them first. Check your debt to income ratio, calculate your expenses, check out the loan interest rates and then go for the amount that suits your needs and fits your budget.