What is loan eligibility calculation? (From salary slip to loan amount)

Loan eligibility calculation is the method a lender uses to turn a salary slip into a maximum loan amount.

Written 11 September 2026. For bankers in India.

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In one line

It is the path from gross salary, to net income, to maximum EMI (Equated Monthly Instalment), to loan amount.

Why it matters to you

• You use it daily. You apply this method on almost every salaried loan file you handle.
• A wrong number has a cost. A mistake can reject a good borrower, or approve a loan he cannot repay.
• Borrowers ask why. They often ask why their eligible amount is lower than they expected.
• One method, many products. Home loans, personal loans and car loans use the same core steps.
• It protects both sides. A correct calculation protects the bank and stops the borrower from over-borrowing.

How it works

BANKPULSE VIEW: credit officers across lenders broadly follow the same steps below. The exact FOIR (Fixed Obligation to Income Ratio) percentage and rate differ by lender.

1. Take gross monthly salary from the latest salary slip or salary certificate.
2. Deduct tax, provident fund and other fixed pay deductions. This gives net take-home income.
3. Apply the lender's FOIR limit to net take-home income. This gives the maximum total EMI allowed.
4. Subtract the borrower's existing EMIs and other fixed monthly dues, such as running loans or card dues.
5. The result is the maximum new EMI this loan can carry.
6. Convert this EMI into a loan amount. Use the reducing balance formula, at the lender's chosen rate and term.
7. For a secured loan, work out the security-based maximum too, using the LTV (Loan to Value) limit.
8. The final eligible amount is the lower of the income-based amount and the security-based amount.
9. The lender then rounds the figure down, to a round number set by its own policy.

BANK PRACTICE: each lender sets its own FOIR limit in its board-approved policy. There is no single, fixed percentage.

Some lenders skip steps 3 to 6. They multiply income by one fixed number instead. See income multiplier method. BANK PRACTICE: this shortcut fits one chosen rate and term. It is not a separate rule.

Worked examples

Both examples below are computed by machine. Figures are rounded only where stated.

Example 1: higher income, one running loan

• Gross monthly salary: Rs 80,000.
• Fixed deductions: provident fund Rs 1,800, professional tax Rs 200, tax deducted at source Rs 4,535.
• Net take-home income: Rs 73,465.
• FOIR used by the lender: 50 per cent.
• Maximum total EMI: Rs 36,732.50 (50 per cent of Rs 73,465).
• Existing car loan EMI: Rs 8,000.
• Maximum new EMI: Rs 28,732.50.
• Loan terms: 9 per cent a year, 240 months (20 years).
• Loan amount from the exact EMI: Rs 31,93,472.
• Some lenders round the EMI down to the nearest Rs 100 first: Rs 28,700.
• Loan amount from the rounded EMI: Rs 31,89,860.
• The two paths differ by about Rs 3,600. Neither number is wrong. Each comes from a different, common rounding choice.

Example 2: lower income, no running loan

• Gross monthly salary: Rs 45,000.
• Fixed deductions: provident fund Rs 1,000, professional tax Rs 200.
• Net take-home income: Rs 43,800.
• FOIR used by the lender: 55 per cent.
• Existing EMI: none.
• Maximum new EMI: Rs 24,090 (55 per cent of Rs 43,800).
• Loan terms: 9.5 per cent a year, 180 months (15 years).
• Loan amount: Rs 23,06,975, which the lender rounds down to Rs 23,06,000.

What the rule says

NO RBI NUMBER: the Reserve Bank of India does not fix the FOIR percentage or the income multiplier. It also does not fix the eligibility method for an ordinary salaried loan. We searched rbi.org.in for a rule on this exact point. Searches run:

• FOIR for retail loans.
• Income assessment for individual borrowers.
• Responsible lending rules for retail loans.

None of these searches found a general FOIR or income-multiple rule. Each bank or NBFC (Non-Banking Financial Company) sets its own FOIR limit in its board-approved policy. BANK PRACTICE: our sources show FOIR limits typically between 40 and 55 per cent of net take-home income. This range differs by lender, income band and loan type.

RBI RULE (microfinance loans only): a separate, narrow rule applies to microfinance loans to low-income households. The Reserve Bank of India's Regulatory Framework for Microfinance Loans fixes this limit. A household's total monthly repayment, on all loans together, must not go above 50 per cent of its income. This comes from RBI's own FAQ on that framework. This 50 per cent rule does not apply to an ordinary salaried person's home loan, personal loan or car loan.

For a secured loan, compare this method's result with the LTV-based maximum. See LTV for the current limit and its source. We do not repeat those figures here, to keep one page as the single source for them.

Common mistakes

• Treating a bank's FOIR as an RBI rule. It is the lender's own policy, except the microfinance case above.
• Using gross salary, not net income. The FOIR limit applies to net take-home income.
• Missing an existing due. Forgetting a running loan or card due inflates the eligible amount.
• Checking only income. A secured loan also needs the security-based, LTV check.
• Using the wrong interest method. The EMI-to-loan step needs the reducing balance formula, not a flat rate.
• Assuming multipliers match. One lender's income multiplier will not match another's, since the rate and term behind it differ.

How to use it at your desk

1. Collect the last three months of salary slips, or a salary certificate, and the bank statement.
2. Work out net take-home income. Deduct tax, provident fund and other fixed pay deductions.
3. Pull the borrower's running loans and card dues from the credit bureau report.
4. Apply your lender's current FOIR limit to the net take-home income.
5. Subtract existing dues. This gives the maximum new EMI.
6. Convert this EMI to a loan amount. Use the right rate and term.
7. For a secured loan, also check the LTV-based maximum from the valuation.
8. Take the lower of the two amounts. Round down as your policy requires.
9. Write down every figure and assumption used, so it can be checked later.

Related terms

• FOIR — FOIR turns net income into the maximum EMI a borrower can pay. This page uses that number.
• EMI — The EMI formula converts the maximum EMI into a loan amount. This page uses it twice.
• Net take-home income — The FOIR limit is applied to this figure, not to gross salary.
• Income multiplier method — A shortcut version of this same calculation, using one fixed multiple of income.
• LTV — For a secured loan, the bank compares this result with the LTV-based maximum.
• Reducing balance vs flat rate — The loan amount step must use the reducing balance method, not a flat rate.

Quick check

Who sets the FOIR percentage: RBI, or each lender?

Answer: Each lender's own policy sets it, except the microfinance rule below.

Should FOIR apply to gross salary or net take-home income?

Answer: Net take-home income.

For a secured loan, which figure does the lender use: the income-based amount, or the lower of the two amounts?

Answer: The lower of the income-based amount and the security-based amount.

Sources

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