How to become a “loan eligible” borrower?

There are numerous factors that banks take into consideration when computing your loan eligibility. Age of the applicant, his salary, repayment/credit history, savings, profession, location of property, health condition and other debts have a direct bearing on the loan amount sanctioned. With property prices sky rocketing one needs the maximum possible loan. Under how you can improve your loan eligibility

October 01, 2013 9:39 IST | India Infoline News Service

The ideal candidate for a loan from a lender’s viewpoints would read like this - “Age between 24 and 45. Well educated professional. Expenses should not be more than 50% of income. Ideally must work for government services or a large corporate though self employed will be considered. A credit score greater than 750.” Even if you fit in all the criteria there are several factors on which your loan eligibility will be decided.


Your bank will assess your repayment capacity while deciding the home loan eligibility. Repayment capacity is based on your monthly disposable / surplus income, (which in turn is based on factors such as total monthly income / surplus less monthly expenses) and other factors like spouse's income, assets, liabilities, stability of income etc. The main concern of the bank is to make sure that you comfortably repay the loan on time and ensure end use. The higher the monthly disposable income, higher will be the amount you will be eligible for loan. Typically a bank assumes that about 55-60 % of your monthly disposable / surplus income is available for repayment of loan. However, some banks calculate the income available for EMI payments based on an individual’s gross income and not on his disposable income.


The amount of the loan depends on the tenure of the loan and the rate of interest also as these variables determine your monthly outgo / outflow which in turn depends on your disposable income. Banks generally fix an upper age limit for home loan applicants.


Increase loan eligibility...


Get a better Cibil credit rating

A better Cibil score helps the bank look at your application in a more favorable light. It will not just decrease you the rate of interest that the bank charges you but also likely to increase your loan eligibility.


Two are better than one

If your spouse is also earning, the income of your spouse can be combined and you could applied jointly for the loan. You can also club incomes with a parent to take a joint home loan.


Pay off older loans

Since amount you are eligible for is a function of your disposable income, you could repay any previous loan to increase your eligibility as this will increase your disposable income.


Go in for a longer tenure loan

A longer tenure loan will increase the amount that you are eligible to borrow. A longer tenure will also mean that you pay a more interest over the years and hence this not really advisable except as a last resort.


Step up option (SURF)

For young professionals Step up option works well in increasing their loan eligibility. A step-up loan is one in which a bank or a financial institution lends money taking into account the borrower's future income. The lender decides the loan amount for which an individual is eligible on the basis of the borrower's expected professional growth. In this way, a borrower qualifies for a larger loan amount even if her/his present salary is low.


Nurture your relationship

If you have a long standing relationship with the bank, you may be able to convince them about the increase in future income and your repayment capacity. Also if you work for a large corporation, the bank may give you preferential terms including higher loan eligibility.

Some of the important aspects which will affect your loan ability are

  • Your income

  • Category of the company you work

  • Other fixed payments

  • If a home loan then property attributes for example most banks will not fund a property without a clear tittle

  • Your and your co-applicant age should cross over 65 years during the tenure of the loan.

  • Tenure of the loan and rate of interest


The author is Co-Founder & Director, CreditVidya

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