Personal loan: What is the maximum amount of loan I can avail on my income?

If you happen to fall short of funds or have an urgent financial need — you can ask a friend to rescue you in times of distress. Alternatively, you can borrow a personal loan from a bank. For the unversed, personal loan in an unsecured loan one can borrow from a bank to meet sundry financial requirements that knock on your door uninvited.

Being unsecured, a personal loan tends to carry a high rate of interest —12 to 18 percent a year. And the purpose of the loan can vary widely from going on a holiday to buying an expensive item, and spending on the house renovation or on a wedding in the family.

If you are planning to raise a personal loan for any of these reasons and beyond, remember that the limit of loan can vary widely. However, the maximum limit is usually a multiplier of your monthly income. This effectively means lower your monthly income, lower the amount of loan you stand to raise. And higher your income, higher the limit of personal loan you can raise.

For instance, some banks offer up to 20 times of your monthly income, while others approve personal loans at a smaller multiplier. In other words, if your monthly income is ₹one lakh, the bank would offer you a personal loan of up to ₹20 lakh (a multiple of 20) or ₹30 lakh as the case may be.

Based on the multiple of 20 times, one can raise personal loan upto the limits defined in the table below

It is vital to note that the personal loan limit is also subject to the cap set by the bank. Some banks – as a rule -- do not approve a personal loan over ₹25 lakh, while others can go up to ₹40 lakh. In other words, simply because your salary entitled you to get a higher loan does not mean that the bank would approve of it.

For instance, Axis Bank gives personal loan for an amount upto ₹40 lakh whereas ICICI Bank can go upto ₹50 lakh (remember that these limits are subject to change from time to time).

But why do the banks impose these limits?

They do this to curb the urge of borrowers to borrow more than they can afford to repay. Someone who wants to raise too much of a loan is expected to be mindful of his income so that it does not become a problem to service the loan at a later stage.

To sum up, the amount of personal loan that you stand to receive depends on a number of factors which we have listed here.

Factors which determine the quantum of personal loan are as follows:

1. Monthly income: The maximum loan that one can avail is a function of your monthly income. As mentioned earlier, higher your income, higher will be the amount of personal loan. For instance, someone who earns higher can get an approval for a higher loan, whereas someone with a low monthly income is entitled to receive a lower amount of personal loan.

2. Credit score: Another factor that determines your personal loan taking ability is your credit score. This means if your credit score is high, the bank may get convinced to grant a higher personal loan. And when your credit score is on the lower end of the spectrum, the amount of loan that you stand to get is low.

3. Current loan obligations: One key factor that determines your personal loan limit is the current loan obligation. The maximum personal loan that one can borrow tends to factor in the current loan obligation (s).

For instance, if you have already taken a ₹5 lakh loan. You now decide to borrow ₹15 lakh loan while your maximum eligibility is ₹17 lakh then you will be entitled to receive only ₹12 lakh (17 lakh – 5 lakh) now.

4. Cap on loan: Most banks have set the maximum cap beyond which they don’t grant a personal loan. For instance, some banks have set this cap at ₹20 lakh, while others go upto ₹40 lakh.