How is loan eligibility calculated?
Banks typically allow up to 50% of your net monthly income (called FOIR, Fixed Obligation to Income Ratio) to go towards loan EMIs. If you already have existing EMIs, the available amount reduces accordingly.
Other factors that affect eligibility: credit score (CIBIL), employment type, employer profile, loan type, and age.
Frequently Asked Questions
Q: How is loan eligibility calculated in India?
Banks primarily use FOIR (Fixed Obligation to Income Ratio), typically capping total EMIs (existing plus new) at 40% to 50% of your net monthly income. Your eligible loan amount is then worked out from the EMI you can afford, at the interest rate and tenure you choose, using standard EMI amortization.
Q: How much loan can I get on a salary of ₹50,000?
At a typical 50% FOIR, ₹25,000 would be available for EMI. At 8.5% for 20 years, that translates to roughly ₹28 to 30 lakh in home loan eligibility, though the exact figure depends on your existing EMIs, credit score, age, and the specific bank's policy.
Q: Does CIBIL score affect how much loan I am eligible for, not just the rate?
Yes. A strong CIBIL score (750+) can increase both your approved loan amount and the rate you're offered, since lenders view you as lower risk. A weaker score can reduce your eligible amount even if your income comfortably supports a higher EMI on paper.
Q: Why does eligibility differ between home loan, personal loan and business loan for the same income?
Each loan type uses a different maximum tenure and risk-based interest rate, both of which directly change how much EMI capacity translates into loan amount. A home loan with a 20 to 30 year tenure unlocks a much larger amount than a personal loan capped at 5 years, even at the same monthly EMI.
Q: Do existing EMIs always reduce my eligibility rupee for rupee?
Yes, banks subtract your existing monthly EMI obligations from your total permissible EMI capacity before calculating new loan eligibility. Paying off or reducing an existing loan before applying can meaningfully increase what you qualify for.