₹1 crore personal loan sounds tempting? Check your eligibility with this rule first

When you are applying for a personal loan, the amount that you want to borrow will be high on the priority list. While the quantum of the loan depends on the financial requirement of the borrower and therefore varies with each person, lenders follow a clearly stipulated formula before disbursing the amount.

Several leading banks offer personal loans of ₹40-50 lakh with one lender even providing ₹1 crore for eligible borrowers. But most lenders provide personal loans on the basis of the net monthly income (NMI) of the borrower. NMI is calculated after deducting existing loan obligations from the salary/income of the borrower. 

Here is a guide on the maximum amount a person can avail as a personal loan, the importance of having low debt levels to get a higher loan and the ideal amount that you can borrow.

What is the maximum personal loan amount that you can avail?

This varies with each lender. State Bank of India (SBI) and Kotak Mahindra Bank offer personal loans of up to ₹35 lakh while HDFC Bank and Axis Bank provide ₹40 lakh. You can get a personal loan of up to ₹50 lakh at ICICI Bank. IDFC First Bank offers personal loans of up to ₹1 crore for eligible borrowers. The maximum amount that you can avail as loan entirely depends on your income, the policy of the lender and your ability to keep debt at low levels.

What determines the quantum of your personal loan?

Banks and financial institutions typically determine the size of your personal loan based on your NMI. They also take into account your credit score and repayment history. 

For example, if you have a monthly income of ₹ 60,000 and service a debt (including credit card payments) of ₹5000 on an average per month, then your NMI will come to ₹55000. Your maximum personal loan amount is based on the NMI of ₹55000. 

SBI has fixed 24-times NMI as the benchmark for personal loans, which in the case listed above works out to an eligible loan amount of ₹13.2 lakh. Lenders usually provide personal loans that range from 15 times to 40 times the NMI of the borrower. Axis Bank, for instance, offers a personal loan of 15 times the NMI of the borrower.

What is the ideal NMI for getting loans?

NMI or debt-to-income (DTI) ratio is a key metric that combines all your debt and divides it by your monthly income. This is one of the first things lenders consider before approving a loan as it enables them to understand whether the borrower is in a position to repay the instalments. Though there are no clear benchmarks, an NMI of less than 40% is considered as ideal by lenders.

Borrowers can use NMI to understand their loan approval chances and for financial planning. An NMI or DTI of less than 40% will greatly improve your chances of loan approval with lower interest rates thereby reducing your financial burden substantially.

Why does net income matter in personal loans?

A personal loan is an unsecured loan. This means that you are not required to pledge any collateral to get the loan. So, lenders are extra cautious when they disburse personal loans. Banks and financial institutions provide a lot of weightage to your income as it determines your ability to repay the loan amount. 

They also consider factors such as credit score, outstanding loans, current income and stability of income. Lenders prefer providing loans to persons who are free of obligations. So, a high net income can get you a higher loan amount at lower interest rates.

A personal loan comes with its own set of conditions. Interest rates range from 10.3% to 24%, which is high when compared to secured loans. But make sure that your debt is within reasonable limits when compared to your income before taking a personal loan. In any case, do not take personal loans of more than 25 times your NMI as servicing such a debt will become a hassle. If your NMI is ₹2 lakh per month, your personal loan should not be more than ₹50 lakh.

Allirajan M is a journalist with over two decades of experience. He has worked with several leading media organisations in the country and has been writing on mutual funds for nearly 16 years.