Thinking about borrowing a personal loan? Well, the first thing that the lender is going to check is your monthly income. When it comes to personal loans, lenders always consider your income as the primary factor to decide the loan amount eligibility. Because personal loans are unsecured loans, your salary is the only reliable parameter that the lenders trust to get their money back along with the interest. So, it becomes very important for any lender to ascertain the monthly income of the borrower. Bases on the income, lenders calculate the amount of EMI that the borrower can easily afford. You can also check out any of the instant money loan app and calculate the amount of EMI payable against a particular loan amount availed for a specific tenure.
The longer the tenure the lower will be your EMI and hence the loan amount you will be eligible for will be more. However, it is important to note here that longer tenure also means more interest pay out. Furthermore, exhausting your borrowing limit is never a good idea. So, make sure to do all the calculations and if needed reach out to a financial expert before signing the dotted papers.
What is considered to be income?
The exact definition of ‘income’ will differ from lender to lender and for self employed vs salaried people. For the self employed people, the concept of income is generally taken as their previous year income as per their income tax return. Interest income or income from savings and investments may also be included in some cases.
For salaried people, the concept of income is rather simple. The lender will ask you to submit the bank statement of your salary account along with your salary slips. Whatever amount is credited to your account from your employer is considered to be your income. In a number of cases, employers also tend to provide annual bonuses or variable income based on the performance of the employee and/or the company. It is at the lender’s discretion to consider these bonus pay-outs or variable income pay-outs as ‘income’ for the purpose of loan eligibility calculation. Though these are counted in income more often than not, you should always check with the lender when you apply for an instant money loan.
The concept of a minimum income for loan eligibility:
When you apply for a loan, the lender will first check if you meet their minimum income requirements. India as of 2021-22 as per the Reserve Bank of India has an Annual Net National Income of Rs 1,50,007 or a monthly Net National Income of slightly over Rs. 12,500. Keeping this in consideration, the lenders tend to place a minimum income requirement in the ballpark of Rs 15,000.
The concept of minimum income requirement is placed to ensure that the applicant has a stable income source and is not on the verge of financial distress. This means even the best loan app will not lend to someone who is on the verge of financial distress no matter how good their credit score or their past salary is. One needs to have a stable source of income to be able to pay their loan back.
Factors that are considered from your income:
- Lenders need to account for your personal living expenses: Before anything else, the lender does account for the money that you will need for food, clothing, transportation, home, and other basic living expenses. Specifics may differ for every lender, but the most common approach is that half of your income is considered in this head. Therefore, any lender will rarely lend you money where the monthly loan instalment is more than half of your monthly salary.
- Lenders need to account for any existing liabilities you may have: For people who are not first-time borrowers and who already have other loans of debt instruments in active usage, the lenders will take their monthly liability and reduce your remaining income by the monthly payouts to calculate the eligibility amount.
Here is a simple example! A person who is earning Rs. 40,000 every month applies for a loan. They can be considered eligible to get a loan where the EMI works out to be somewhere between Rs. 15,000 to 20,000 per month. This is assuming that they have no other liability of any kind. If they have another loan running where they are paying around Rs. 7,000 as EMI the same will also be taken out and they will only be considered eligible for loans where the monthly installment will be in the ballpark of Rs. 10,000.
In conclusion, personal loans are a regulated but free market. This means that within certain parameters, everyone is free to set their own formulae and standards for deciding loan eligibility. Based on the same income level, you will get differing eligibility for an instant money loan. You can choose a conventional lender and they will give you low eligibility when compared to the best loan app. This is the reason why comparison shopping and loan eligibility calculators are very important, and most lenders provide you with the same on their website or through the app, or both. You can check how much income you should have to get a specific amount of money as a loan before you apply for it. This way you can have a very high degree of confidence that your loan application will be accepted, and you will get the money.