Overview
Loan eligibility is not a single fixed number — it is the output of a calculation that combines your income, existing debt obligations, the interest rate offered, the tenure you choose, and increasingly, your credit score. Two applicants with identical salaries can receive very different eligible loan amounts depending on these factors. This guide breaks down exactly how banks compute eligibility for home loans and personal loans, so you can estimate your own number before walking into a bank or filling out an online application.
Use the Loan Eligibility Calculator alongside this guide to get a precise, personalised figure.
What You Need
- Your net monthly income (take-home salary after PF, professional tax, and income tax deductions — not gross salary)
- A list of all existing EMI obligations (car loans, personal loans, credit card minimum dues, other running loans)
- Your approximate credit score (CIBIL score, if you have checked it recently)
- The interest rate and tenure being offered by the lender you are evaluating
Step 1: Understand FOIR (Fixed Obligation to Income Ratio)
FOIR is the core metric most banks use to determine how much EMI you can afford. It is calculated as:
FOIR (%) = (Total EMIs including new loan ÷ Net Monthly Income) × 100
Banks typically cap FOIR at 40–50% of net monthly income for most applicants, meaning your total EMI burden — existing loans plus the new one you are applying for — cannot exceed this percentage of your take-home pay. Applicants with a strong credit score and stable income history sometimes qualify for a more generous FOIR cap of up to 55–60%, since the bank views them as lower-risk.
Step 2: Apply the Income Multiplier Method
Some banks use a simpler shortcut alongside or instead of FOIR — the income multiplier method. Under this approach, home loan eligibility is estimated as:
Eligible Loan ≈ 60 to 72 × Net Monthly Salary
This roughly translates to 5–6 times your annual income for a standard 20-year tenure. The multiplier method is faster to apply during an initial inquiry but is less precise than FOIR-based calculation since it does not directly factor in your specific existing EMIs or the exact interest rate being quoted — it is best treated as a quick estimate rather than a final number.
Step 3: Calculate Maximum EMI You Qualify For
Once you know your FOIR cap, calculate the maximum EMI you can take on for the new loan:
Max New EMI = (FOIR % × Net Monthly Income) − Existing EMIs
Worked example: An applicant has a net monthly income of Rs 80,000, the bank applies a 50% FOIR cap, and the applicant already pays Rs 10,000 per month toward an existing car loan.
Max total EMI allowed = 50% × Rs 80,000 = Rs 40,000
Max new EMI = Rs 40,000 − Rs 10,000 (existing car loan EMI) = Rs 30,000
This applicant can afford a maximum EMI of Rs 30,000 per month for the new loan, after accounting for their existing obligation.
Step 4: Convert Max EMI to Loan Amount
With the maximum affordable EMI established, the next step is converting it into an eligible loan amount using the standard EMI formula in reverse — solving for the principal (loan amount) given a known EMI, interest rate, and tenure:
P = EMI × [(1 + r)^n − 1] / [r × (1 + r)^n]
P = Loan principal (eligible loan amount)
EMI = Maximum monthly EMI you can afford
r = Monthly interest rate (annual rate ÷ 12 ÷ 100)
n = Number of monthly instalments (tenure in years × 12)
Continuing the example: With a maximum EMI of Rs 30,000, at a 9% annual interest rate over a 20-year tenure (240 months, monthly rate r = 0.75% = 0.0075):
P = 30,000 × [(1.0075)^240 − 1] / [0.0075 × (1.0075)^240]
P ≈ Rs 36 lakh
This applicant qualifies for an eligible home loan of approximately Rs 36 lakh at these terms. Increasing the tenure to 25 or 30 years would raise this eligible amount further (since the same EMI services a larger principal over more instalments), but it also increases the total interest paid over the life of the loan — verify both the eligibility gain and the interest cost before choosing a longer tenure purely to qualify for a bigger loan.
Step 5: Account for Other Factors
Beyond the core FOIR and EMI-to-loan calculation, three additional factors materially affect your final eligible amount:
- Credit score: A CIBIL score above 750 typically secures the bank's best interest rate and can unlock a higher FOIR cap. A score below 700 often results in a higher offered interest rate (which reduces the loan amount the same EMI can support) or, in some cases, outright rejection at certain lenders.
- Age and remaining working years: Banks limit tenure so that the loan is fully repaid by a maximum age — typically 60 for salaried applicants and 65–70 for self-employed applicants. A 50-year-old applicant may be restricted to a 10–15 year tenure rather than the full 20–30 years available to a younger applicant, which directly reduces eligibility.
- Co-applicant income: Adding a co-applicant with independent income, most commonly a working spouse, increases the combined net monthly income used in the FOIR calculation, raising the maximum allowable EMI and therefore the eligible loan amount — provided the co-applicant's own existing EMIs do not offset the benefit.
Common Mistakes to Avoid
Using gross salary instead of net salary. Banks calculate FOIR on take-home pay after deductions, not your gross CTC. Estimating eligibility using gross salary inflates the expected loan amount and leads to disappointment when the bank's actual offer comes in lower.
Forgetting existing EMIs and credit card dues. Many applicants only account for major loans like a car loan and forget smaller obligations such as credit card minimum dues, personal loan EMIs, or even education loan instalments. Each of these directly reduces the maximum new EMI you can qualify for — review your last 3 months of bank statements to capture every recurring obligation.
Ignoring the credit score impact on eligibility. A lower credit score does not just risk rejection — it can quietly reduce your eligible loan amount by pushing you into a higher interest rate bracket, which means the same maximum EMI supports a smaller principal. Check your credit score before applying and address any errors or overdue accounts that might be suppressing it.
Formula & Methodology
The full eligibility calculation chains together three formulas:
Step A — FOIR cap: Max Total EMI = FOIR % × Net Monthly Income
Step B — Net new EMI: Max New EMI = Max Total EMI − Existing EMIs
Step C — Loan amount (PV): P = EMI × [(1 + r)^n − 1] / [r × (1 + r)^n]
Using the worked example throughout this guide — Rs 80,000 net income, 50% FOIR, Rs 10,000 existing EMI, 9% interest, 20-year tenure — the eligible loan amount comes to approximately Rs 36 lakh. Changing any single input shifts the result: a higher FOIR cap (55% instead of 50%) raises the max new EMI to Rs 34,000, which increases eligibility to roughly Rs 41 lakh at the same rate and tenure; extending tenure to 25 years at the original Rs 30,000 EMI raises eligibility to approximately Rs 39 lakh, but adds several lakh in total interest paid over the loan's life.
For a precise number using your own income, existing obligations, and the specific rate and tenure your bank is offering, use the Loan Eligibility Calculator. Pair it with the Home Loan EMI Calculator to compare EMI outcomes across different loan amounts and tenures, and the Debt-to-Income Calculator to check your overall debt load before applying for a new loan.