Credit Score and Credit History
Lenders often rely on credit scores and credit reports to assess a borrower’s creditworthiness.A higher credit score generally indicates a lower credit risk, and borrowers with good credit may qualify for higher loan amounts.
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Multiplier Method
Lenders use the Multiplier Method to determine personal loan amounts. This involves multiplying the applicant’s net monthly income by a predetermined factor, usually between 10 and 24 times.
Debt-to-Income (DTI) Ratio
The DTI ratio is calculated by comparing monthly debt payments to gross monthly income. A lower DTI ratio is preferred, indicating more disposable income for covering loan payments. While monthly income is crucial, factors like credit score, existing obligations, and employment stability also impact loan eligibility.
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EMI/NMI Ratio
This ratio considers the proportion of net monthly income spent on existing EMIs and the proposed loan’s EMI. Lenders often favor applicants with an EMI/NMI ratio of up to 50-55%. If it exceeds this limit, extending the loan tenure or opting for lower interest rates can enhance eligibility for a higher loan amount.
Loan-to-Value Ratio (LTV)
The LTV ratio is crucial, especially in housing loans, as it helps evaluate risk. It represents the ratio of the loan amount to the asset or collateral value securing the loan. Lenders use this information to set appropriate terms and conditions for the loan.
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Conclusion
It’s important to note that different lenders may prioritize these factors differently, and the criteria can vary based on the type of loan and the lender’s policies. Additionally, regulatory requirements and economic conditions can influence lending practices. Borrowers are encouraged to communicate openly with lenders and understand the specific criteria used in the loan approval process.