If you have availed of a personal loan for the salaried, your lender would have asked for a CIBIL score or a credit report. The 3-digit CIBIL score helps them understand your creditworthiness.
Your creditworthiness depends on whether you can repay a loan on time. Apart from the CIBIL Score, lenders not only look at your income but also at your debt-to-income ratio (DTI). If you are in the process of availing an unsecured loan, it is important to understand what exactly is debt-to-income ratio.
The DTI determines a borrower’s loan repayment capacity as per his gross monthly income. It is a percentage that you get by dividing all your monthly debt payments by the monthly income you earn.
By using this method, lenders get a general idea of whether you will be able to repay the loan you wish to avail.
There are certain factors of debt-to-income ratio that you will need to consider:
Start with your monthly income before tax deductions. You can get your net monthly income from your salary slip.
Next, consider your monthly debt payments. This will include any secured as well as unsecured loan that you have availed of. You will also need to consider your credit card payments to calculate the debt-to-income ratio.
One factor that you will not consider to calculate your DTI ratio are your bill payments. This includes your daily expenses, grocery bill, utility bills, insurance payments, etc.
As a borrower, you may wonder why this figure even matters to your lender. Is it really that important to them?
Yes, lenders need to see a good debt-to-income ratio before they approve or sanction your online personal loan. This percentage gives them a fairly decent idea of your capability to repay your new loan over and above the existing ones.
A personal loan is a collateral-free loan. Based on the DTI and other documents, lenders can choose to either approve or reject your loan application.
How do you get your loan-to-income ratio? There is a basic formula that will help you understand calculate your debt-to-income ratio:
DTI=total monthly debt payments/total gross income x 100
To put this in perspective, let’s assume:
Your net monthly income is Rs. 75,000 and your total monthly debt payments is Rs. 25,500.
DTI= 45000/75000 x 100; which equals to 34%.
Is 34% a good debt payment ratio?
Debt payment ratio depends on your salary bracket. So based on how much you earn per month, you can calculate your debt to income ratio.
A good ratio shows the lender that you have decent control of your finances and still have a certain amount of money left in your pocket as savings.
If you find yourself on the higher side of 34%, there are a few things you can do to improve your debt-to-income ratio:
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Example of Personal Loan for Salaried Professionals✓ Loan Amount from ₹50,000 to ₹10,00,000✓ Repayment period (loan tenor) options vary from 6 to 60 months ✓ Annual Interest Rate (APR) is 16% to 26% (on a reducing balance basis) + processing fees of 3 to 4% on the principal loan amount ✓ For Example – a loan of ₹1,00,000 with an APR of 16% (on a reducing balance basis), repayment tenure of 12 months, processing fee of 3%. The processing fee will be ₹3,000 + ₹540 GST with monthly EMI will be ₹9,394. The total loan amount will be ₹1,03,540. Total interest payable over 12 months will be ₹9,191. Total loan repayment amount is ₹103540 + ₹9191 = ₹1,12,731 *These numbers are for representation only and the final interest rate or processing fee may vary from one borrower to another depending on his/her credit assessment.✓ Loan Prepayment Charges: 3 to 6% charge + 18% GST on the remaining principal amount (allowed after 6 EMI payments)Why is Finnable the best personal loan app?Instant Loans within 48 hours: Gone are the days when you had to wait weeks & months to get a loan approved.Completely Digital/Paperless: Finnable instant loan app offers a complete digital service to help save time as well as paper!
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