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How Do Banks Decide on Your Loan Eligibility?

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When you apply for a loan whether it is a personal, housing or mortgage loan, the first and foremost aspect banks look at, is your ability to repay. Although, there are other specific criteria to be fulfilled by every applicant, the following are the basic points or rather calculations based on which your loan eligibility is determined. It is not all that difficult to understand how these calculations are arrived at, in fact if you are able to work it out on your own then you can find out what will be the maximum loan you can avail, irrespective of which bank you apply to. 1) IIR- Installment to Income Ratio Banks understand that your loan value should not exceed your repaying capacity. This ratio is 33.33% to 40% of your monthly income. Using the IIR, how much you can borrow as well as repay will be decided by the bank. For instance if you earn Rs.50,000 per month, then your IIR is Rs.16,500. That is, the maximum emi payable by you is not more than 16,500 per month. This determines yo