New Delhi [India], May 25: Personal loan affordability plays out differently from your eligibility. While lenders may approve a higher amount based on your salary and credit score, the right loan amount should comfortably integrate with your monthly budget. Learn how to achieve this with this guide on choosing an affordable personal loan.
What determines personal loan affordability?
Understanding how a personal loan fits your day-to-day finances is central to determining your affordability. The factors influencing the same include:
- Monthly income
A higher and stable income flow shows your ability to manage personal loan EMIs without affecting your other financial needs.
- Employment stability
To ensure you have a stable monthly income, a reliable income source is important. A longstanding employment, instead of frequent gaps, contributes to better financial bandwidth for loan repayment.
- Monthly expenses
Regular costs like rent, bills, groceries, family responsibilities, and other financial commitments can affect your available income to handle personal loan EMIs.
- Existing EMIs
The extent to which your income already going toward other loans affects your ability to manage a new loan.
- Credit history
A strong credit score improves your chances of getting affordable loan offers. This is due to its reflection of a positive repayment behaviour. For instance, having a credit score of 710 or above makes you eligible for a FIRSTmoney personal loan from IDFC FIRST Bank. FIRSTmoney offers competitive interest rates starting at 9.99% p.a. to eligible loan applicants.
- Loan amount and tenure
The loan tenure and the amount you borrow also decide the EMI amount and interest burden, which directly affects affordability.
What is the ideal EMI-to-income ratio (FOIR)
A part of understanding your personal loan affordability is checking your FOIR (Fixed Obligation to Income Ratio). It indicates the amount of your income going towards your fixed repayments relative to your monthly income.
Determining the ideal EMI against your FOIR involves breaking down your fixed expense components. This includes regular expenses, existing EMIs, savings, and emergencies.
A personal loan eligibility calculator can help you understand your borrowing capacity based on your monthly income and total obligations. This, coupled with a personal loan EMI calculator, assists in choosing a comfortable EMI.
How to use a personal loan eligibility calculator
A personal loan eligibility calculator is an accessible tool that lenders like IDFC FIRST Bank provide on their website to help you borrow smartly. It helps you gauge your affordability in seconds with these simple steps:
- Enter monthly income
Your monthly income forms the base for borrowing. Enter your salary here. If self-employed, input your average monthly earnings.
- Add your existing obligations
The total of all your current EMIs and credit card dues along with your fixed expenses shows a clear picture of your available income.
- Get an instant estimate of loan amount
Based on your income available to take on a new loan, the tool will give you an instant estimate of the total loan amount you can borrow.
Tips for smart borrowing
Borrowing with clarity helps cater to your affordability. Here are some practical tips to make a financially responsible choice:
- Define your purpose
While a personal loan is not restricted in terms of usage, it helps to have a clear purpose to borrow only what is necessary. With a FIRSTmoney personal loan by IDFC FIRST Bank, you can also withdraw funds as per your need from your approved loan offer. Interest is applicable only on the funds you withdraw.
- Maintain an emergency buffer
Leave room in your finances for unexpected expenses so they don’t strain your EMIs later. You can create a dedicated emergency fund for the same.
- Understand total cost
Look beyond the interest rate and get an understanding of all the charges, such as processing fees, overdue penalty, EMI bounce charges, stamp duty, and other associated charges. With FIRSTmoney you can enjoy zero foreclosure charges and processing fee as low as 0% on select loan amounts.
- Anticipate prospective obligations
Based on your life goals, account for upcoming expenses like education, family, travel, etc. This way, they won’t affect loan repayment later.
- Avoid financial strain
Choose an EMI that fits your budget without affecting your essential expenses and savings. Choose loan options that offer flexible repayment options such as the IDFC FIRST Bank’s FIRSTmoney smart personal loan.
Final words
A well-planned personal loan application ensures that the loan relieves your financial pressure in the present, while also ensuring easy management later. Keep enough room for your existing expenses, EMIs, savings, and unexpected costs while applying for a personal loan. Also, compare offers for the best interest rate. Lenders like IDFC FIRST Bank offer FIRSTmoney personal loan of up to ₹15 lakhs with a reducing balance interest rate starting at just 9.99% p.a.