Personal loan eligibility: what decides if, and what decides how much

Your credit score is a summary of behaviour: whether you paid on time, how much of your card limits you use, how many times you have applied for credit recently, how long your accounts have existed. It answers whether the lender is willing to deal with you and, roughly, at what rate.

FOIR, the fixed obligation to income ratio, is arithmetic about capacity. Add up every fixed monthly outgo on credit, divide by monthly income, and compare against a cap that most lenders set somewhere between 40 and 55 percent. Whatever room is left under that cap is the EMI you can be given, and the EMI sets the amount.

The two numbers do not trade off against each other, which is the part that surprises people. A score of 800 with FOIR already at 48 percent gets a small loan. A score of 700 with FOIR at 10 percent gets a larger loan at a higher rate. Knowing which of the two is your constraint tells you what to fix, and only one of them can be fixed before next month.

Take a ₹50,000 monthly income and a lender who caps FOIR at 50 percent. That is ₹25,000 of EMI room in total, before anything you already pay is counted. Every existing obligation comes out of that ₹25,000 first, and what remains is the EMI the lender will let a new loan carry.

To turn an EMI into a loan amount, you need a rate and a tenure. At an illustrative 12.5 percent over 48 months, every ₹1 lakh borrowed costs ₹2,658 a month. So the borrowable amount is simply the room divided by ₹2,658, times a lakh. Here are four people on the same salary at the same lender.

A card with a ₹1,00,000 limit and ₹60,000 outstanding on the statement date is counted, at the common 5 percent convention, as ₹3,000 of monthly obligation. It makes no difference that you will pay the ₹60,000 to zero five days later. The bureau records what the statement showed, and the underwriter works from the bureau.

At 12.5 percent over 48 months, ₹3,000 of EMI room is ₹1,12,867 of loan. On the ₹50,000 income above, a person with no other EMIs drops from ₹9,40,557 of capacity to ₹8,27,690 because of a card they never pay interest on. A card used to its full ₹1,00,000 limit on the statement date costs ₹1,88,111 of capacity the same way.

The fix is timing, not behaviour. If you plan to apply for a loan, pay the card down before the statement is generated for two cycles, not after. The reported balance falls, the notional EMI falls with it, and the room reappears. This is the one part of FOIR that can be improved inside a month.

The score does two things and only two: it decides whether the lender will lend at all, and it places you in a pricing band. It does not decide the amount. The bands below are illustrative; every lender draws its own lines and moves them with its appetite in a given quarter.

Run the multiplier on the ₹50,000 income. Twenty times is ₹10 lakh, and that is the figure a calculator will show. Now compute the EMI on ₹10 lakh at 12.5 percent over 48 months: ₹26,580. The FOIR cap at 50 percent is ₹25,000. The calculator's answer needs more EMI room than the salary has with zero existing obligations. It is not a conservative estimate that a good profile can beat; it is an amount no lender using a 50 percent cap can approve at that tenure.

The only way to make ₹10 lakh fit is to stretch it. At 60 months the EMI is ₹22,498, which fits, but only for someone with no home loan, no car loan and no card balance, and only at a lender that goes to 50 percent. Add a single ₹12,000 EMI and even the 15 times figure of ₹7.5 lakh fails, because its 48-month EMI of ₹19,935 is more than the ₹13,000 of room left.

The honest multiplier is not a constant. At 12.5 percent it is about 18.8 times income at 48 months and 22.2 times at 60 months, and that is before subtracting anything you already pay. The calculators quote the ceiling for a person with no obligations and a five-year tenure, and present it as if it were you.

Suppose you ask for ₹6 lakh over 48 months, earn ₹50,000 and already pay ₹10,000 in EMIs. Room at a 50 percent cap is ₹15,000. The EMI on ₹6 lakh over 48 months is ₹15,948, which does not fit. The lender has three ways to respond and will usually choose one without explaining why: cut the amount to what fits, which is ₹5,64,334 at 48 months; stretch the tenure until ₹6 lakh fits, which happens at 60 months with an EMI of ₹13,499; or decline.

None of those is a judgement on your repayment history. Your score passed the door; the room ran out. That matters because the instinct after a reduced sanction is to apply elsewhere for the full amount, which adds a hard enquiry to your report, and the next lender does the same arithmetic on the same income and reaches the same answer.

The lender's default is often the longer tenure, because it lets them say yes to the full amount. It is worth computing what that yes costs before accepting it.

Six lines, on paper or in a spreadsheet, and the answer is as close to the lender's as makes no difference.