What is my loan eligibility? As a salaried person, how much loan will I get? Such questions are common when you search for loans. Let us see how banks view your salary slips and process the loans.
One of the critical eligibility criteria for any loan is the take-home pay factor. What constitutes take-home pay? Understanding this concept is essential to know how banks process your loan applications.
Look closely at your salary slip. You have the concept of ‘Gross Pay’ and ‘Net Salary.’ The banks look at the net salary figure while calculating the loan eligibility. The net salary is the amount you take home after the deduction of various loan instalments (from the employer), statutory payments, insurance premium, and so on. Specific components of your salary slip are of a variable type. They may not be present every month. Also, you have elements like LTA (Leave Travel Allowance) and Medical Allowance in your salary. Most of the banks do not consider these allowances while calculating the net wage for loan purposes. It explains by many banks ask for salary slips for the previous three months. It helps them to arrive at the average net salary.
You might have other loan liabilities like Home Loan, Personal Loan, Credit Cards, and so on. The repayment of these loans comes from your net salary. Hence, banks have to account for these payments while arriving at your eligibility level. The net take-home pay is the amount you have in hand after considering these loan instalments. Usually, banks approveup to 60 times your net take-home pay as the maximum home loan eligibility. For Personal Loans, the figure is much less. It depends from bank to bank. Some banks approve up to 12 times your net take-home pay whereas some have a stricter stipulation in comparison.
When the bank processes your loan application, it has to make sure that you can repay the loan comfortably. Hence, they stipulate conditions that the total of all the EMIs (Equated Monthly Instalments) put together should not exceed 50% of the net salary. Your loan eligibility depends on this amount. Therefore, when you Apply for a Personal Loan, the banks calculate the eligibility in the following manner:
Whichever is less.
The following example will make things clear:
Net Monthly salary = 50,000
Maximum amount as per bank loan product = 5Lakhs
The rate of interest is 14%,and the maximum tenure is 60 months
You are servicing a couple of EMIs namely, 4,000 towards Personal Loan and 12,000 for your Home Loan.
Now, banks need a minimum net take-home salary of 50% for Personal Loans after accounting for all loan instalments. Hence, the total of all your EMIs including the proposed Personal Loan should not exceed 25,000. Therefore the bank has the leverage of 9,000. They calculate your PersonalLoan eligibility considering that
9,000 is available as the probable EMI.
The banks approve the lowest of the following three calculations:
In this case, banks approve a Personal Loan of 3.85 lakhs
When it comes to Home loans, banks are more liberal as most of the banks stipulate the take-home pay percentage as between 35% to 40%. Therefore, when you apply for a Home Loan, your eligibility increases as compared to a Personal Loan.
A lot of other factors also play a part in determining your eligibility. They include the following:
It depends on his take-home pay. You have to remember a fundamental aspect of the pre-approved loan offers. There will be a difference between the pre-approved Home Loans and the actual Home Loan. The banks do not have all the necessary information at the time of providing the pre-approved Home Loans. You should thus be careful while searching for a new house based on your pre-approved Home Loan sanction letter. The final amount can differ thereby forcing you to incur additional expenses. It is advisable to keep a cushion on such offer letters.
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