Even if you earn more than Rs 6 lakh, banks can deny you a car loan

State Bank of India, the country's largest lender, has decided to not give car loans to persons with annual income of less than Rs 6 lakh. The eligibility conditions have been tightened because the bank wants to minimise possible defaults.

But do you know even if you earn more than Rs 6 lakh per annum banks can refuse you loans? This is not specific to SBI or not just car loans. This is because banks take into account a number of important factors to decide the amount of loan you are eligible to get. The factors include your income, repayment capacity, assets, liabilities, credit report, qualification, age, dependants, savings and the stability and consistency of your occupation also matter.

So the lender will calculate your ability to repay based on your income and expenditure pattern. It is assumed that you need around 40 percent of your income as living expenses. So if you get Rs 80,000 per month and spend Rs 35,000 as living expenses and Rs 35,000 on heads, such as a home loan, your eligibility will be calculated on the remaining Rs 10,000.

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Generally your loan eligibility = monthly savings/equated monthly instalment (EMI) per lakh x 1 lakh.

So for a car loan of Rs 7 lakh taken for 5 years at 12 percent interest rate, the EMI would be around Rs 15,571. So, in this case, the eligibility would be 10,000/2224 x 1 lakh, or Rs 4.49 lakh only.

So, the next time you want to avail a loan, you may want to keep this in mind. Do not just assume that you will get a loan just because you have met the income criterion.