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How Do Lenders Calculate Loan Eligibility?

When you have multiple loans, and it's difficult to repay them simultaneously, then you can opt for a debt consolidation loan. When you go for a debt consolidation loan, your bank or NBFC usually considers two factors. 

Salary Multiplier

When applying for a debt consolidation loan, banks can use your monthly salary to estimate the loan amount. But, there is no fixed multiplier set by the RBI. Each lender has its own rules based on your income, credit profile, repayment ability, and loan type.

For illustrative purposes only, consider a scenario where a borrower earns a net monthly income of ₹50,000. In this case, your bank uses a 10-times multiplier. That means your indicative loan eligibility can be around ₹5 lakh. So, you can get up to a ₹5,00,000 loan in return for previous multiple loans. And then pay only one EMI for this debt consolidation loan. 

FOIR (Fixed Obligation to Income Ratio)

FOIR shows how much of your income is being used to repay current loans. When you go for a debt consolidation loan, banks use this method to check whether you can pay the new EMIs. There is no fixed limit set by the Reserve Bank of India. This is because every bank is different, and internal lending policies and risk policies are different. 

How Can You Improve Your FOIR?

The lower your FOIR percentage, the higher your chances of getting a new loan. That's why a good FOIR is important. Here are some tips by which you can improve your FOIR. 

• Focus on paying off outstanding debts, such as credit card bills, to reduce your monthly financial burden. But lenders calculate FOIR differently, so paying off a credit card may not always reduce your FOIR directly. Still, reducing your debts can free up more of your income for other expenses and EMIs.
• You can add a co-applicant. Adding a co-applicant can increase your loan eligibility by combining both incomes, but it does not guarantee approval. Lenders check both applicants’ credit scores, debts, income, and repayment history. If the co-applicant has a poor credit score or high debt, it may reduce your chances of getting the loan or lead to less favourable terms. Also, many lenders allow only close family members as co-applicants, not friends.
• You can choose a long loan tenure. A longer loan tenure reduces your monthly EMI and can make the loan easier to afford. but you will pay more total interest over the loan period. It may help you qualify for a higher loan amount, but you could end up paying much more to the lender in the long run.

When you have less FOIR, it means your income is stable and enough for repayment. It automatically increases your chances of getting a loan. 

What Can Increase Your Loan Eligibility?

There are many factors that affect your loan eligibility. The following are important ones.

• Your income is important. If you have higher monthly income, it shows your repayment capacity.
• Lenders also check your credit report. If you have a higher credit score, it shows your credit history is good, and lenders can give you a loan.
• The next important thing is your current EMIs. If you have fewer EMIs to pay now, then you have more income for a new EMI.
•  Another important thing is long tenure; if your tenure is long, you can pay less EMI monthly.

Apart from these factors, your stable employment is a must. It shows you can pay off the loan. 

Read Also : What happens after 7 years of not paying a debt in India?

Can Debt Consolidation Help If You Already Have High EMIs?

It can, but not guaranteed. When you have high EMIs, you can combine them and get one debt consolidation loan. Then you have to pay only one EMI monthly. But there are some risks or limitations to this. 

What Should You Check Before Taking a Debt Consolidation Loan?

You get one loan by consolidating multiple ones. Banks check your income details and credit history, but you should also choose debt consolidation loans very carefully. Before choosing it, you must compare interest rates, processing fees, APR, and prepayment terms. Plus, you should not get any new loan or credit card while paying EMIs. 

That means your salary alone doesn't decide what amount of loan you are going to get. Your EMIs, credit history, and lender's policy also play a big role in it. 

Conclusion

Your salary isn't the only factor that decides your loan amount. Actually, banks or NBFCs check different factors while checking your eligibility. In this factor, they check your current loans and their EMIs. Also, check your credit score, credit history, and repayment capacity. That means banks want to know if you are capable of repaying the loan or not. 

If you have a stable and higher income plus lower current EMIs, your chances of getting debt consolidation loans are much higher. The financial amount totally depends on the lender. That's why, with a good income you should have a good credit history too. And before going for a debt consolidation loan you should always compare the interest rate, APR, processing fees, tenure, and prepayment terms. 

Why Choose LoansJagat for Debt Consolidation?

It is very difficult to manage multiple loans but you do not have to worry. LoansJagat helps you bring up to 10 loans or credit card dues into one manageable monthly payment. It makes your debt easier to manage. You can compare loan offers from 50+ trusted RBI-registered banks and NBFCs in one place and choose an offer based on your needs. You may get a consolidation loan of up to ₹50 lakh, depending on your eligibility. With flexible repayment tenures of 2 to 7 years, you can choose a repayment period that suits your budget. LoansJagat also offers a fully digital process, so you can complete verification and apply online without the hassle of physical paperwork.

Frequently asked questions 

Does a higher salary always mean I can get a larger debt consolidation loan?

To be honest, just having a higher salary doesn't mean that you are eligible for getting a large debt consolidation loan. Because banks consider other things too while approving your loan. Normally, banks or NBFC check your debt to income ratio, credit score, and your current EMIs. If you do not fit their criteria, you are not eligible for a debt consolidation loan.

How do existing EMIs affect the debt consolidation loan amount I can get?

Your existing loan EMIs affect your debt consolidation loan. It happens because the new lender checks your credit score, income, and current loan EMIs. If your income's big portion is going towards the payment of current EMIs then the bank may think you will not be able to pay more EMI on tim and hence they avoid lending large amounts.

Can I get a debt consolidation loan if most of my salary is already used for EMIs?

It is possible but depends on the lender. If your current EMIs contain a large amount of salary, the bank may think you are not able to pay off the new EMI timely. In many cases banks can still give you a loan if you are immediately paying off the current loan and closing that account. 

Does the loan tenure affect how much debt consolidation I can get?

Yes, it directly affects your debt consolidation loan amount. Because loan tenure is related to your monthly EMIs. The longer your tenure the less EMI you have to pay. 

Can I include credit card outstanding balances while calculating the required consolidation loan amount?

Yes, you can include credit card outstanding balances in your consolidation loan, but paying them off does not guarantee a credit score increase.

Does my employer or type of employment affect the loan amount based on my salary?

Yes it does. Lenders check many factors while approving loan amounts and one of those factors is your income details. Banks check your monthly income and if you have stable income or not. It gives them an idea of your loan repayment capacity. 

Is the maximum loan amount shown by an online EMI calculator the amount I will actually receive?

No, an online EMI calculator only estimates your EMI based on the details you enter. It cannot decide your actual loan eligibility or approved loan amount. Lenders check your income, credit score, existing debts, and repayment ability before deciding your final loan terms.

Can a salary increase help me qualify for a higher debt consolidation loan?

Yes, it can but this doesn't only factor. If you have a good credit profile, less EMI burden, and stable employment then you can definitely get a higher debt consolidation loan. But if you have too many monthly EMIs which contain a large part of your new salary, then it is difficult to get approval. 

Can I apply for a debt consolidation loan for more than the total amount of my existing debts?

Yes, you can. Actually, a debt consolidation loan is an unsecured personal loan which can be used for any purpose. So you can definitely apply for more than the total amount of the existing loans. But it is advisable not to do that because you are getting a debt consolidation loan to repay the previous loans. If you get a new loan, it can increase the debt burden. 

Why can two people earning the same salary qualify for different loan amounts?

Two people with the same salary can get different loan amounts because lenders look at their overall financial situation. Factors like existing debts, credit score, job stability, and monthly expenses can affect loan eligibility.