Personal Loan Amount Calculation

Key Takeaways

  • Lenders assess factors like creditworthiness, income, and collateral to determine the maximum loan amount.
  • Credit score significantly impacts eligibility and maximum loan amount, with higher scores leading to larger loans.
  • Loan purposes influence the required loan amount, such as medical expenses, education, mortgages, or auto purchases.
  • Online calculators help estimate loan amounts based on affordability and repayment capacity, aiding in budget planning.
Personal Loan Amount Calculation

Personal loans are a valuable way for you to solve financial problems and deal with unexpected expenses. However, not every borrower can obtain the same loan amounts. Lenders use various methods and metrics to determine the maximum loan amount each individual can borrow.

Let’s go over how personal loan amounts are calculated for different loan types and general strategies for obtaining your desired loan amount.

Understanding loan amount calculation methods

Lenders assess the details of essential factors including your employment, income, and your credit report. The main goal of offering borrowers different loan amounts is for lenders to mitigate the risk they undertake when lending money.

For unsecured loans, creditworthiness is the most important. If you’re seeking a secured loan, high-value collateral can be a convincing way for you to obtain a larger loan, even if you have poor credit.

Factors that affect loan amount calculation

  1. Credit score

One of the leading factors affecting your eligible loan amount is your credit score.

There are two main models for credit scoring: FICO and VantageScore. Both show creditors to what extent you are creditworthy and range from 300 to 850.

If you have a good credit score (670 to 739), you will qualify for most personal loans. The maximum loan amount you are allowed to obtain should be higher and will likely be enough for your needs.

As for exactly how large of a loan you can obtain, most lenders don’t offer loan amounts above $100,000. With a good credit score, you might receive around four to five times your income.

There are other benefits to having a good credit score. For example, the interest rate that you can receive should not be too high, and your loan repayment terms may be more flexible than if you had poor credit.

With decent credit (580 to 669), you may qualify for fewer loans and lesser loan amounts.

If you have a poor credit score (less than 580), your loan application might get rejected and the lenders available to you may be limited. With bad credit, your maximum loan amount might be anything from $1,000 to $35,000.

  1. Recent credit history

Your credit report will allow creditors to see your credit history. This includes your credit behavior, such as how consistently you repay debt and whether you have made missed debt payments.

The more reliable you are when it comes to repaying debt, the more likely you will be able to receive a large loan amount of up to $100,000.

  1. Debt-to-income ratio

Your debt-to-income (DTI) ratio expresses what percentage of your income goes toward repaying debt.

Generally, it’s advised to maintain a DTI ratio below 43%. A ratio above that will be viewed as excessively risky by lenders, which means that they will likely refuse your loan application. The most straightforward way to reduce your debt-to-income ratio is to simply pay down your debt. It might not immediately reduce your ratio, but it is a great step toward reducing your DTI.

  1. If the loan is backed by collateral

Secured personal loans are backed by collateral. Collateral assets can vary greatly in value, which is why lenders will determine your loan amount based in part on what collateral assets you are offering them. If you fail to pay back the loan, the lender will be legally allowed to repossess the collateral and do whatever they want with it to recoup losses.

Usually, borrowers will be allowed to obtain a loan amount of half the value of what they are putting up as collateral.

  1. Your employment status and history

Lenders care about whether you are capable of repaying the loan. That is why they will take a look at your recent employment record when assessing what loan amount you can obtain. Typically, lenders will ask you for relevant records containing information about your employment from the past two to three years.

If you have held the same job position for over a year, lenders will view you as a borrower with a better chance of repaying the loan. On the other hand, if you don’t have a steady track record of employment, it might be harder for you to obtain a sizable loan amount.


How much loan amount do you need?

The ideal loan amount will depend entirely on your particular situation and needs. First, ask yourself what the purpose of your loan is. The loan’s purpose will influence how much of a loan you should seek.

Here are the average loan amounts for each kind of common personal loan.

Medical loan

Medical loans typically range between $50,000 and $100,000. They can help you pay for medical expenses, especially unexpected ones that might deplete all of your emergency savings.

Student loan

Federal student loans average around $37,000, with over 90% of student loans being federal as opposed to private.

Private student loans average around $55,000 per borrower.

If you’re looking for a student loan to fund your or your child’s higher education, it’s important to understand how student loans work. If you default on your student loan, there can be serious consequences that will be both costly and difficult to handle financially.


Mortgages are secured loans for financing home purchases. The average mortgage has loan amounts of around $220,000. How big a mortgage you need will of course depend on what property you are trying to finance. When it comes to mortgages, the collateral is almost always the property that you are using the loan funds to buy.

Auto loan

New cars cost around $49,000, whereas used cars cost around $28,000 on average. You can expect an auto loan amount to vary based on whether you need funds for financing a used car or a new car.

Loan amount calculation for fixed interest rate loans

Fixed interest rate loans have interest rates that stay the same once you sign the loan agreement. One major reason to choose fixed rate personal loans over variable rate loans is because of the predictability of fixed rate loans. Every payment installment, your interest rate will remain the same, which makes it much easier to budget for your loan repayment.

When it comes to lenders calculating your loan amount, whether you go for a fixed rate loan or a variable rate loan is usually not an influencing factor. Because of that, it is advisable for you to simply choose the interest rate type that makes the most sense for you.


Loan amount calculation for variable interest rate loans

Variable rate loans have variable interest rates that fluctuate over time based on shifting market conditions. Typically, variable rate loans are more beneficial to borrowers who are seeking short-term loans.

Despite this, the kind of interest rate is usually not an important factor when it comes to how much of a loan you will be eligible to receive.

Using loan amount calculators to determine loan amount

Online loan amount calculators can be a useful tool for you to determine your loan needs. They can help you narrow down how much money you can borrow based on how much you can afford to repay each month.

Debt repayment can be a complex process if you are not aware of how personal loans work. Creating a budget plan for your planned loan before you officially sign the loan agreement is a valuable strategy that strengthens your financial position.

Balancing loan amount with repayment ability

It is essential to pick a loan amount that aligns with your priorities and needs. If you won’t be able to manage your loan payments each month, it can pose a serious financial problem that only snowballs with time. Debt can grow as interest accrues, and missing a single monthly payment could dip your credit score. In addition, if you end up defaulting on the loan, it can drastically hurt your credit score and financial stability.

To ensure that you are adequately prepared to repay the loan, it is a good idea to determine whether your desired loan amount is what you need. You should figure out what is the upper limit to your monthly loan payments, which helps guide your budget and loan amount choice.

Strategies for negotiating loan amount with lenders

Naturally, you want to procure a loan amount that works best for your needs. To do this, it might be a good idea to try negotiating your loan amount with prospective lenders.

When trying to negotiate loan terms with lenders, here are a few general strategies to keep in mind.

  1. Know what you need

If you are blindly going in hoping for a better loan amount without a clear idea of how much you need, it usually doesn’t bode well for your negotiating strategy. Before you apply for a loan, know how much of a loan amount you are seeking.

Loan purposes will also affect what loan amount you need. This could make or break a loan agreement in your eyes. When you apply for a loan, think about whether the lender is granting you a loan amount that suffices for your needs.

  1. Understand your financial situation

Before you enter negotiations for changing your loan terms, make sure that you have thoroughly assessed your own financial situation. This includes being aware of your expected expenses, budget, assets, income, as well as liabilities. You want to choose a loan amount that suits your monetary needs while also realistically meeting your repayment capacity.

  1. Highlight anything that makes you more creditworthy

If you have a good credit score, an impressive track record of repaying debt, or a stable source of income, you may want to accentuate these facts about you during negotiations. The more creditworthy you appear, the more likely you will receive favorable loan terms, including a loan amount that is higher.

  1. Think about a loan amount range you are willing to accept

Flexibility can be a valuable trait when it comes to negotiating loan terms. Even if you have a clear idea of exactly how much money you need, it is often a good idea to be aware of how much leeway exists for your loan amount. Going into negotiations with a range in mind can help you more deftly navigate the conversations.


Loan amount calculation for secured loans

Secured loans typically grant you higher loan amounts because these loans are backed by collateral. Your collateral directly impacts how large of a loan you will receive and is a major factor lenders consider when calculating loan amounts for secured loans.

Here are the main reasons why the value of your collateral affects what loan amount you can receive.

  1. Lenders establish their own loan-to-value ratios

Lenders each have their own established loan-to-value (LTV) ratio, which is often used in mortgages. The LTV ratio is the percentage of a collateral’s appraised value that a lender is willing to lend to the borrower. It essentially serves as a way to calculate the maximum loan amount for collateral depending on each collateral asset’s individual valuation.

If a lender has an LTV ratio of 50% and your collateral is worth $10,000, you would be at most able to borrow $5,000.

  1. Asset liquidity can affect your collateral’s value

While many lenders accept a wide variety of assets as collateral, the liquidity of the asset may greatly affect how much money the lender is willing to lend you. If an item has a low resale value or is hard to sell, this can hurt your chances of getting a larger loan.

  1. Lenders have different collateral requirements

When shopping around for a secured loan, you might notice that different lenders have their own terms and conditions regarding collateral assets. If you are seeking a large loan amount, the lender might only be willing to accept certain types of high-value assets, such as vehicle or property titles.


Loan amount calculation for unsecured loans

Unsecured loan amounts can vary significantly based on your credit score and credit behavior. Unlike secured loans, unsecured ones don’t require you to put up anything as collateral, which is why your creditworthiness plays a significantly greater role in loan amount calculation.

At the end of the day, the loan amount you go for should adequately suit your needs while also be realistic and balanced so that you can comfortably repay the loan.

About The Author

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Ru Chen

Content Writer

Ru Chen is a content writer with several years of experience in creating engaging and well-researched articles. She mostly writes about business, digital marketing, and law. In her free time, she can be found watching horror movies and playing board games with her partner in Brooklyn.

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