Personal Loan Eligibility: How Banks Actually Decide

Input one: net monthly income

Lenders start from your net take-home pay, verified through salary slips and bank credits. Minimum thresholds range from ₹15,000 to ₹25,000 depending on city and lender, but the minimum only gets you in the door. Loan amount scales with income, and many banks cap the loan at a multiple of monthly income, commonly 20 to 25 times, subject to the FOIR test below.

Variable pay, bonuses and reimbursements are treated inconsistently. Some lenders count 50% of average variable pay; others ignore it. For self-employed applicants, income is taken from ITR profit, sometimes with add-backs for depreciation, or from bank statements under surrogate programmes.

Input two: FOIR, the ratio that decides the amount

The Fixed Obligations to Income Ratio is the share of your income already committed to EMIs and other fixed payments, plus the EMI of the new loan. Lenders cap it between 50% and 65%; higher incomes are allowed higher caps. Worked example: net income ₹80,000, existing car EMI ₹12,000, cap 55%. Total allowed obligations are ₹44,000, so the new EMI can be up to ₹32,000. At 12% over 5 years that supports a loan of about ₹14.4 lakh.

Two levers change this immediately. Closing the car loan lifts the eligible EMI to ₹44,000 and the loan to roughly ₹19.8 lakh. Extending tenure to 7 years at the same EMI lifts the amount to about ₹18 lakh, at the cost of more total interest.

Input three: the credit report, not just the score

A score of 750 or more earns the best rates; 700 to 749 is comfortable; 650 to 699 restricts you to a few lenders at higher pricing; below 650 means most banks decline. But underwriters read the report. Recent hard enquiries, a settled account, credit card utilisation above 30% to 40% for months, or a single 30-day delay in the last year all reduce the amount or the odds even at a decent score.

Check your report before applying. Errors are common and the bureaus must correct them within 30 days of a dispute.

Input four: employer and profession category

Banks maintain employer lists. Government, PSU, listed companies and large multinationals fall in the top categories and get lower rates and higher multiples. Small private firms and proprietorships fall lower; some lenders require a minimum company turnover or employee count. A job at a top-category employer can be worth 1% to 2% in rate. Self-employed professionals such as doctors and CAs have their own favourable categories.

Input five: stability and age

Most lenders want one to two years of total work experience and six months to a year in the current job. Frequent job changes and gaps hurt. Age must allow the loan to end before 60 to 65 for salaried applicants, which caps tenure for older borrowers and, through the EMI, the amount.

Improving eligibility before you apply

In rough order of impact:

• Close or prepay small loans and bring card balances down below 30% of limits for two or three statements.
• Avoid new enquiries for three months before applying.
• Add a co-applicant with income if the lender permits it on personal loans.
• Ask for a tenure that keeps FOIR comfortably within the cap rather than at its edge.
• Apply to the one lender whose policy fits your profile, rather than to five at once.