Did you know how the eligibility for loan calculated by the banks? Then here is where you will be getting some idea. The most important thing to know is that the banks will only give you the amount if they are able to fore-see that you can repay in time. Time frame and the monthly instalments can be worked out together with the bank once you and the bank calculate and understand how much amount you are eligible for. Keep reading to know how it’s calculated.

The eligibility process

The first and foremost thing the bank will look at is your monthly income and expenditure. They will ask you for your salary slips, bank statements and tax returns for a minimum for 3-6 months. Why they need that information from you is because they want to thoroughly understand how much you earn per month and then move into the next step.

Secondly, after gathering information about your income, the bank starts to look at how much you are saving per month after taking care of the most important expenditures like house rent, electricity bill, gas, telephone bills and such payments. They will see if you’re able to save some amount after those payments and if yes, how much is the amount you save. The saved amount is of course used for the lifestyle and daily routine, hence, the banks presume that saved amount is of 30% and it is that 30% saved amount that the banks take into account could be made as the equated monthly instalment aka EMI.

This next step comes into mind if you are found to be already paying other EMIs for some other loan, like for e.g. the car loan, house loan. In this case the total saved amount will have a deduction of the other EMI account and then the eligible amount will have to be readjusted. So if suppose the monthly saving is 10,000 and the other instalment you pay are 2000, then while taking another loan the bank will look at your savings as 8000 and the loanable amount will highly depend on that.

Last step in calculating the eligibility after keeping in mind the other three steps in the process is to calculate the amount depending on the latest interest rate running in the bank and calculating the term of period agreed to pay the amount back. So if you have chosen the term of 10 years to pay back the amount then looking at the saved amount the bank will give you the loan amount.

These are the standard steps taken by most of the banks to show you how much you are eligible to be able to borrow from the bank. This is also after checking your credit score, because if that is bad for you then the edibility calculation procedure don’t begin, the application gets rejected before that itself. So now that you have the basic idea of the procedure, you could also estimate how much you would get. Hope this was helpful.