What Determines Your Personal Loan Amount?

 Personal Loans are a popular financial product that can be used for different purposes, such as debt consolidation, home renovation, medical expenses or any other unexpected expenses. One of the most important factors that determine your Personal Loan eligibility and terms is the loan amount. Generally, lenders calculate the amount using Multiplier Method or EMI/NMI Ratio. However, the specific method used by lenders to determine the loan amount can vary widely and depend on several factors such as credit score, income, employment status and existing debts. Understanding how your personal loan amount is decided can help you make an informed decision and get the best loan offer for your needs and financial situation.


What is Multiplier Method?

The multiplier method is a common approach used by lenders to determine the loan amount that a borrower can qualify for based on their income. Lenders use a method to calculate Personal Loan amounts based on a predetermined multiple of the applicant's net monthly income. The multiple can vary between 10 to 24 times the monthly income, depending on the lender's policies and the applicant's income level. This means that the higher the monthly income, the higher the loan amount a borrower may be eligible for, subject to the lender's policies. 

What is EMI/NMI Ratio

EMI/NMI ratio is the proportion of your net monthly income that goes towards paying off existing EMI and new loan EMI. Lenders generally prefer applicants with an EMI/NMI ratio of up to 50-55% for personal loan approvals. Your net income, loan tenure and Personal Loan Interest Rate determine your EMI/NMI ratio. You can increase your eligibility for a higher loan amount by either extending your loan tenure or getting a personal loan at a lower interest rate. However, your net monthly income and fixed monthly EMI obligations cannot be changed unless you pay them off completely.

Conclusion

Personal loan amounts are decided based on various factors. However, the most common method used by lenders to determine the loan amount is the multiplier method, which involves multiplying the borrower's income by a specific factor or percentage. Additionally, the EMI/NMI ratio is an important consideration for lenders, and borrowers can increase their eligibility for a higher loan amount by either extending the loan tenure or getting a personal loan at a lower interest rate. Understanding how personal loan amounts are decided can help borrowers make informed decisions and choose the best loan offer for their needs and financial situation.


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