How Much Personal Loan Can I Get On Rs 25,000 Salary In India?

Personal loans are among the easiest and most popular debt products because of their simplicity and speed of the application process. They cover a range of personal expenses including healthcare emergencies or lifestyle purposes such as a destination wedding, buying expensive gadgets or going on a foreign vacation.

Since personal loans are unsecured in nature, banks and non-banking finance companies provide personal loans to borrowers based on their credit history and capacity to repay.

One of the parameters that lenders use to assess the eligibility of a borrower is minimum income. Generally, most lenders insist on a minimum salary of Rs 15,000 per month to be eligible, though the amount may vary from lender to lender.

Lenders look at a stable source of income so that the personal loan can be repaid on time. If the loan applicant's income is too low or if a substantial part of the income is going into repaying existing loans, they tend to dismiss the application.

Besides the salary, lenders look at the credit score of the applicant before deciding on the application. Credit score is a metric used by lenders to assess creditworthiness of a borrower. The credit score ranges from 300 to 900, with a score above 750 considered good.

But how does the lender decide on how much loan a person with income of Rs 25,000 can get?

The amount of personal loan a person can get depends on income, existing loan obligations and credit score. Lenders generally use two methods to calculate the amount they sanction to a personal loan applicant—the multiplier method and the fixed obligations to income ratio, or FOIR, method.

What’s FOIR Method?

In this method, the lender looks at the ratio of the total monthly obligations to the monthly income of the borrower. The main difference with the multiplier method is that it considers expenses of the borrower in addition to the income.

The ratio is calculated by dividing total fixed monthly expenses like rent, EMIs, and credit card bills with the monthly salary. Lenders want this ratio to be not more than 50%, which in other words means, the fixed expenses should not be more than half of the salary of the borrower.

So, with a monthly income of Rs 25,000, the EMI and other fixed expenses should not exceed Rs 12,500. If a borrower's fixed obligation is about Rs 11,000 per month, that means the fixed obligations to income ratio is 44% (11,000/25,000*100=44) and disposable income is Rs 14,000. The loan will be a multiple of the disposable income and can range from Rs 2.8 lakh to Rs 5.6 lakh. The loan amount will be higher if the fixed obligations to income ratio is lower and vice versa.

What’s Multiplier Method?

In the multiplier method, lenders sanction a multiple of the monthly income as loan. The multiple can range from 10 to 20 times, depending on lender to lender. Using this method, a person with a monthly income of Rs 25,000 will be eligible for a loan of anywhere between Rs 2.5 lakh and Rs 5 lakh.

The multiple tends to be higher for those with credit scores of above 750 and lower for those with lower scores. The multiple will be higher for those with low debt-to-income ratio and lower for borrowers with a high debt-to-income ratio.

Conclusion

Lenders take into account a number of factors including total income, credit score, existing loans while sanctioning a personal loan. A monthly income of up to Rs 25,000 does not automatically mean a high-risk category, but lenders will do their due diligence before lending to this category. Those with monthly income of Rs 25,000 can get a loan of Rs 2.5-5 lakh provided they have a decent credit score and don't have too much debt already.

Lenders like IIFL Finance provide personal loans at attractive interest rates. IIFL Finance offers personal loans starting at Rs 5,000 and up to Rs 5 lakh with a duration of as short as three months to as long as 42 months. The company, one of India’s biggest non-banking finance companies, follows a fully online process for loan application and sanctions as well as disburses the loan amount within a couple of days of completing the verification. It also allows borrowers to customize their repayment schedules to match the EMIs with their salary credits or cash flows.