1. What is the Loan Eligibility Calculator?

The Loan Eligibility Calculator determines the maximum loan amount you can afford based on your monthly payment capacity, interest rate, and loan term. It helps in financial planning before applying for loans.

2. How Does the Calculator Work?

The calculator uses the loan eligibility formula:

Where:

• \( P \) — Maximum loan amount (USD)
• \( PMT \) — Affordable monthly payment (USD)
• \( r \) — Monthly interest rate (decimal)
• \( n \) — Total number of payments (months)

Explanation: The formula calculates the present value of an annuity (the loan amount) based on regular payments (PMT) at a given interest rate over a specified period.

3. Importance of Loan Eligibility Calculation

Details: Knowing your maximum eligible loan amount helps in budgeting, prevents over-borrowing, and ensures you only consider properties or purchases within your financial capacity.

4. Using the Calculator

Tips: Enter your comfortable monthly payment, annual interest rate (without % sign), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Should I include taxes and insurance in the monthly payment?
A: This calculator computes principal and interest only. For total monthly payment, add estimated taxes and insurance separately.

Q2: How does interest rate affect loan eligibility?
A: Higher interest rates reduce your eligible loan amount as more of each payment goes toward interest rather than principal.

Q3: What's a good debt-to-income ratio?
A: Lenders typically prefer your total debt payments (including the new loan) to be below 36-43% of your gross monthly income.

Q4: Does this calculator account for variable rates?
A: No, this assumes a fixed interest rate for the entire loan term. Variable rate loans would require different calculations.

Q5: How accurate is this calculator?
A: It provides a good estimate, but final loan amounts may vary based on lender policies, credit score, and other factors.