A personal loan is an unsecured loan that you can avail to meet your varied needs. Through this loan offering, you can finance your personal or professional needs without depleting your savings. The best part of a personal loan is, it has a higher limit than a credit card, which comes in handy when you need to make a big-ticket expenditure. However, it is not necessary that you can get a loan of the maximum amount offered by the lenders. There is always a limit within which you can avail a personal loan.
If you have been wondering how much loan amount you can avail, here is a guide to help you understand the factors that are considered while deciding your personal loan limit.
- Credit score
The credit score is a numerical representation of your creditworthiness. The more credit score you have, the better are your chances of a high loan limit. If you have a low credit score, it can indicate that you are not creditworthy, and it is risky to lend you money. So, the lender can reduce your maximum loan amount and charge you a high-interest rate. To avail a personal loan, you must have a credit score of 700 and above.
- Monthly income
Your monthly income is a direct indicator of your repayment capacity. If you have a high monthly income, it indicates that you have more disposable income and can pay the EMIs without any default. Therefore, having a stable income can assure the lender that you will repay the funds on time. Lenders have specific criteria on the amount of income you must earn monthly, which often varies with cities. For metro cities, this limit is higher.
It is easier to repay the loan when you are earning and have a steady source of income. Therefore, lenders consider your age while determining your loan limit. If you are young, it is assumed that you have many years remaining to earn and repay. However, if you are nearing retirement, you might not be able to repay in the later years of your tenure. Therefore, for such applicants, the lenders do not sanction a higher personal loan limit.
- Work experience
Your work experience is usually related to your income stability. If you have more years of work experience, it probably means you are earning a high income and have a stable income source. Having more years of work experience also indicates that you are financially secure and have enough savings to repay the loan. Similarly, your job profile also helps lenders determine your limit. If you have hopped jobs, it can show that you have an unsteady income, and you can default.
- Current liabilities
If you have other loans that you need to repay, the lender could hesitate to sanction a higher loan amount for you. Before deciding your loan limit, the lender ensures that you have enough funds to repay the personal loan.
Many factors affect your repayment capacity, and so lenders use it to determine your loan limit. If you are planning to avail a personal loan, it would be best to use a personal loan EMI calculator to check your affordability.
Smriti Jain is the owner and senior content publisher at Financesmarti. Financesmarti is a website where she shares a lot of useful stuff for the people and business of India. This includes small business ideas and other banking information, as well. Smriti completed her education in science & technology from Delhi University. Smriti usually has interests in digital marketing now, and she has chosen this career for the full-time opportunity. The primary purpose of starting this blog to provide quality information on the banking industry to the people.