Calculate Your Loan Eligibility

Loan Eligibility Formula:

\[ P = \frac{PMT}{r} \times \left(1 - (1 + r)^{-n}\right) \]

Maximum Loan Amount (P):

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1. What is Loan Eligibility Calculation?

The loan eligibility calculation determines the maximum principal amount (P) you can borrow based on your affordable monthly payment (PMT), interest rate (r), and loan term (n). It helps borrowers understand their borrowing capacity before applying for loans.

2. How Does the Calculator Work?

The calculator uses the loan eligibility formula:

\[ P = \frac{PMT}{r} \times \left(1 - (1 + r)^{-n}\right) \]

Where:

\( P \) — Maximum loan amount (principal)
\( PMT \) — Affordable monthly payment
\( r \) — Monthly interest rate (annual rate ÷ 12)
\( n \) — Total number of payments (term in years × 12)

Explanation: The formula calculates the present value of a series of future payments at a given interest rate.

3. Importance of Loan Eligibility

Details: Knowing your maximum loan amount helps in financial planning, prevents over-borrowing, and ensures you can comfortably make payments without straining your budget.

4. Using the Calculator

Tips: Enter your comfortable monthly payment amount, the annual interest rate (APR) you expect to receive, and the loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between loan eligibility and loan approval?
A: Eligibility calculates what you can afford, while approval depends on lender criteria including credit score, income verification, and debt-to-income ratio.

Q2: Should I include taxes and insurance in the monthly payment?
A: For mortgages, use only principal and interest in this calculator. Add property taxes and insurance separately when budgeting.

Q3: How does loan term affect eligibility?
A: Longer terms increase eligibility (lower payments) but result in more interest paid over the life of the loan.

Q4: What interest rate should I use?
A: Use current market rates for the loan type you're considering, or check with lenders for pre-qualification rates.

Q5: Does this work for all loan types?
A: This formula works for standard amortizing loans (mortgages, auto loans, personal loans). It doesn't apply to interest-only or balloon payment loans.