How Do Your Lenders Calculate Personal Loan? Find out here!


Banks and NBFCs generally offer personal loans ranging from INR 10,000 to INR 40 lakhs. However, the amount of the salary loan that you are eligible for will largely depend on your current monthly income, liability and repayment capacity. Lenders assess your ability to repay loans based on the total monthly disposable income. This amount depends on several factors, including your income, existing debt obligations, fixed monthly expenses etc.

Traditional lenders considered a number of factors for granting a loan, and their rules were stringent. Because of this availing a personal loan was considered very cumbersome. But with the emergence of online loan, the consumer finance industry is providing customers with various options across categories. Today, you easily avail a quick loan through a mobile app just by fulfilling the lender’s predetermined criteria.

What is salary loan?

A salary loan is an unsecured loan offered to salaried employees. Digital lending companies provide these loans to people working in the corporate or government sector. An online loan company offers salary loans with relatively minimal document requirements. Usually, in such cases, the digital loan provider only needs a few documents for verification.

How Does A Lender Calculate the Loan Amount Based On the Borrower’s Salary?

Many companies have various terms and conditions for calculating the loan amount that an applicant is eligible for.For most lenders, you must be employed with a legitimate company to be eligible for a salary loan. Also, the lender needs to get verfication from the employer. This makes it easier for the lender to verify the applicant’s identity.

If you apply for an online loan, then you do not have to visit the branch physically. Different lenders employ different methods to determine eligibility for a salary loan; however, the two majormethods that lenders use are as follows:

1. Multiplier Method

Banks and other financial institutions frequently employ this technique to determine a borrower’s eligibility for a personal loan. The higher the salary, the better the company’s reputation, the higher the multiplier and the greater the possibility of obtaining a higher salary loan at a lower interest rate.

In this method, a simple formula is used:

(Net Salary) x Loan Eligibility (a number from 9 to 27)

Under the FOIR Method, the maximum EMI that most lenders, banks, and NBFCs offer clients changes from 50-75% of their NTH income (salary). In determining the final loan eligibility, the banks also consider previous loans and other credit card debt. The applicant can compute his/her eligibility using online calculators available on different websites.

As an illustration, consider the question, “How much personal loan can I acquire on a 30,000 salary?” You can multiply your monthly earnings by 27 to determine the maximum loan amount you will be eligible for if you don’t have any other EMIs. In this instance, it would be 8,10,000 with a 60-month term.

2. Fixed Obligations to Income Ratio

This strategy is based on the highest amount of payments you can make from your net income after paying for things like rent and EMIs, among other things.

Under the FOIR Method, the maximum EMI that the majority of lenders, banks, and NBFCs offer to a client changes from 50-75% of their NTH income (salary). In determining the final loan eligibility, the banks may also take into account previous loans and other credit card debt. The applicant can compute (calculate) his/her eligibility using eligibility calculators provided on different websites.

If the expenses are more than this percentage, the bank will either extend the loan’s term or lower the loan amount. The calculation of FOIR is as follows:

FOIR = (Sum of Current Liabilities/Net Take Home Monthly Salary) * 100.

Let’s use an example where the monthly salary is INR 70,000 and the applicant is now paying an EMI of INR 6,000 for a personal loan and INR 9,000 for a car loan. Now consider that the applicant can pay off loans with 50% of the income.


50% of INR 70,000 = INR 35,000

EMI of Car Loan = INR 9,000

EMI of Personal Loan = INR 6,000

Therefore, the applicant’s disposable income for a salary loan will be:

INR 35000 – INR 9,000 – INR 6,000 = ₹=INR 20,000

Hence, FOIR = (9000+6000)/70000 = 15000/70000 = 0.21 or 21%

This indicates that the lender will not grant the loan even for the longest term if your total monthly EMIs exceed INR 20,000. The applicant will likely acquire the loan if the EMI is not exceeding INR 20,000. Hence using this method, we can determine how much an applicant can afford to pay in EMIs while still paying their other EMIs.


A salary loan is a common type of loan availed by salaried individuals.Its simple application and quick processing make an online loan one of the most preferred loans.But because salary loans are unsecured loans, lenders follow certain methods tocheck your loan eligibility and calculate your loan amount. Knowing these methods will help you improve your creditprofile thus enabling you for the best terms when you apply for a loan.

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