Most of us do not understand how the amount for the loan to be given is decided. Sometimes, we find that two people working in the same firm with the same salary end up getting drastically different amounts as loans. How is this possible?
The loan eligibility is based on two different calculations
- The amount of loan repayment that you can afford to make every month.
- A percentage of the cost of the property.
Let us look at the first calculation: Repayment Ability
The ability to repay is based on your total income and expenditure. Let us say that you have a monthly income of Rs.20,000, and your monthly expenses are Rs.12,000 then you can pay Rs. 8000 towards any loan you take. This figure is then reverse calculated over the tenure of the loan to arrive at the Eligibility Amount. Obviously, the larger your repayment capacity, the higher will be your loan eligibility.
Is it that simple?
No. But that is the basis. Other factors can also affect the repayment capacity. For eg, if you are able to save Rs.2000 per month on the rent to be paid because you will now be owning your house, then your repayment capacity will become (Rs. 8000 PLUS Rs 2000), effectively increasing the amount you can obtain as loan. Also, for the same income, the eligibility for a loan is higher for longer tenure loans, since the repayment is spread over a longer period for the same amount.
What is considered as income?
Some basic thumb rules for arriving at the Income of the borrower, are given below. Usually the following will not be considered as a category of income
- Medical Reimbursements, performance bonus, or LTA, since they are not available at consistent periods, or in consistent amounts.
- Interest income, unless it can be proven that the source is a regular source of income.
- Overtime, for similar reasons.
- Any earnings from non-verifiable sources like expense vouchers, rental incomes etc, unless documentary proof of the source being consistent and stable is provided.
For self employed professionals, some of the documents vary, and measurements are somewhat different.
In case of a joint ownership of the property, the incomes of both applicant, and co-applicants can be clubbed together for ascertaining repayment capacity.
If you have any existing loans, they will affect your repayment capacity, since your disposable income (Rs.8000 in the example above) will be reduced by the EMI on the existing loan. Mostly, however, short term loans of 6 months or so are not taken into consideration
While you have understood how the loan eligibility amount can be increased by taking a longer tenure, it is important to understand the limitations of this route.
The maximum tenure of the loan available is based on your age at the time of application. The age should not exceed 58 years / 60 years (as retirement may be defined at your firm) for salaried employees and not exceed 65 years for self employed professionals.
Keeping this in mind, taking the maximum possible tenure will ensure the maximum amount eligibility.
We have a EMI Calculator tool, which will help you get an approximate figure for your monthly repayment options.
For an exact amount, please give us a call, or drop in to meet us, and we will be glad to work out the details for you.