If you don’t need a loan now, you would be thinking as to why it makes sense to pre-calculate the loan amount that you can get, if need be.
You are right. You don’t need a loan right now. But emergencies come announced. So better be prepared for them. If you do this exercise today, you will have a rough estimate of the amount of loan you can get.
So lets try to understand this calculation.
The lenders these days have an unsaid limit of 40% on the income that a borrower can use for loan repayment. So suppose you earn Rs 1 lac a month, then the lenders would not like to see your total EMIs exceeding Rs 40,000 (i.e. 40% of Rs 1 lac).
Now comes the question as to what loan amount can you get where EMI is Rs 40,000. There can be several answers here depending on interest rate and loan tenure.
Considering personal loans, which can cost between 15 and 20%, lets assume that interest rate in this case is 17%.
So at 17% and EMI of Rs 40,000, you can get a loan of:
- Rs 11.2 lac for 3 years
- Rs 13.9 lac for 4 years
- Rs 16.1 lac for 5 years
Now these are just rough calculations. Do not consider these numbers to be sacrosanct. All lenders have their own policy and the actual amount might be higher or lower.
An important thing to note here is that your loan amount will be lower if you already have some EMIs for other loans (like car or home loan). So lets say you are already paying Rs 11,000 as car loan EMI, then you can only take a personal loan whose EMI is less than Rs 29,000 (Rs 40,000 – Rs 11,000).