Personal loans have been a boon for the working class, allowing them to fulfil all kinds of financing needs. These advances have assisted people in meeting all sorts of financial needs. Be it a top-up for their business or funds for home renovation, a medical emergency or a big ticket purchase, a personal loan comes handy. Personal loans have many attractive features that have worked in favour of them and made them one of the most popular financing options. You can apply for a personal loan in simple steps through online loan apps or you can visit a conventional lender. But before that you must know all about the personal loan limit.
Personal loans come with their set limits, which can vary depending on various factors. To better understand the concept of personal loan limits, one must first fully understand what personal loans are and what credit structure they are based on. Let’s find out all of it in detail below.
What are Personal Loans and How Do They Work?
A personal loan is an unsecured financing option that does not need any asset submission as collateral. A borrower only needs to fulfil a set of eligibility requirements related to their age, income, and other pertinent factors to avail these loans. The paperwork requirement for these loans is minimal too. Especially when availing the advance with a personal loan app, you can be assured of securing funding only against a handful of documents that verify your identity and eligibility.
A personal loan financing structure is such that the borrower can avail the funding in lump sum directly to their account once approved. The loan is provided for a set tenure and the borrower needs to repay the advance along with interest within this tenure through EMIs.
Since the loan does not carry any asset collateral, the borrower’s personal assets are not at the risk of confiscation or auction for loan recovery by the lender in case of complete non-repayment. While this keeps the borrower risk-free, the lender undertakes a significant risk, which makes them set a limit to the loan availability only as much as the borrower’s financing capacity.
What is a Personal Loan Limit and How Does It Work?
Now that you know what a personal loan is and how it works, understanding its limits should not be a challenge. Personal loans come with an inherent financing limit, which makes their availability limited to a given extent only. These limits can be medium to high, and can be checked with the lender you are planning to apply. For instance, with reputed personal loan apps, the maximum limit of these advances can go up to Rs.1.5 Lakh easily.
However, while this is the generic limit, the financing limit each individual can avail as a personal loan varies from one borrower to another. These limits are defined based on the risk factors associated with borrowers.
Below given are a few factors that contribute to your personal loan limit.
– Monthly income
Your monthly income sets the initial limit to how much you can borrow as an instant loan. As you need to repay your loan in EMIs, the payable amount must be easy to accommodate within your monthly income. A higher income is always preferable as it helps ease repayment accommodation.
– Stability of income
Your income stability is another aspect that you must consider when availing a personal loan. It is a crucial risk factor that incites how much and for how long you can avail the loan. Working in the government sector or having a job at an MNC makes it easier to get a high amount loan.
– Age
Your age is a parameter that lenders consider to assess how much to provide as a loan and for how long. Usually, borrowing early in your career is considered beneficial from the perspective of your repayment capability.
– Fixed obligation to income ratio (FOIR)
The percentage of your monthly income occupied by fixed monthly liabilities defines this ratio and helps the lender assess how much more your income can accommodate as a fixed liability, here represented as EMIs. Ideally, FOIR of an individual should not exceed 50%, representing 50% of their income being occupied by fixed liabilities monthly.
Conclusion
Based on these factors, the overall personal loan limit is determined and the borrower’s application is approved or declined. It is ideal to check your personal loan limit and apply within it to receive easy approval for the advance. You can use a personal loan eligibility calculator available on personal loan apps to check your limit and apply accordingly.
