How Banks Calculate Your Loan Eligibility
Before approving a Home Loan, Personal Loan, or Car Loan, financial institutions need to ensure that you have the capacity to repay the borrowed amount without defaulting. To do this, they don't just look at your gross salary; they use a specific metric called FOIR (Fixed Obligation to Income Ratio). Our free Loan Eligibility Calculator uses this exact mathematical model to give you an accurate estimate of your borrowing power.
Understanding FOIR (Fixed Obligation to Income Ratio)
As a general rule of thumb in the banking sector, lenders assume that you require at least 50% of your net monthly income to cover your basic living expenses (groceries, rent, utilities, etc.). The remaining 50% is considered your absolute maximum repayment capacity.
- If your take-home salary is ₹60,000, your maximum repayment capacity is ₹30,000.
- However, if you are already paying a car loan EMI of ₹10,000, the bank will subtract this from your capacity.
- Your *Available EMI Capacity* for a new loan becomes ₹20,000. The bank will then calculate the maximum loan amount that results in an EMI of exactly ₹20,000 over your chosen tenure.
Pro Tips to Increase Your Eligibility
If the calculator shows a lower amount than you need to buy your dream house, don't worry. You can legitimately increase your eligibility by doing the following:
- Increase the Loan Tenure: Stretching your loan from 15 years to 20 years drastically reduces the monthly EMI, which allows the bank to offer you a larger principal amount.
- Clear Existing Small Debts: Paying off an existing personal loan or credit card debt frees up your FOIR, immediately boosting your eligibility.
- Add a Co-Applicant: Adding an earning spouse or parent as a co-applicant allows the bank to combine both incomes, vastly increasing your total borrowing capacity.