What is CTC & It’s Role in Obtaining a Personal Loan?

Posted on Friday, July 26th, 2024 | By IndusInd Bank

When applying for a personal loan, several factors influence your eligibility and loan amount. One significant factor is your Cost to Company (CTC) package. 

If you are a salaried employee, you may be familiar with the term. However, understanding what CTC is, how is it calculated, and the effect it can have on your personal loan application process is crucial. It can help you apply for a personal loan amount that is right for you and increase the chances of loan approval. 

What is CTC? What are its Components?

CTC or Cost to Company is the total amount a company spends on an employee in a year. It is a comprehensive amount that includes various components beyond the basic salary. One can view their CTC in their salary slip. 

Employees must understand what CTC is in their salary slips and its various elements to gauge their total earnings and benefits from their employment.

Components of CTC

Let’s look at the different components that make up the CTC: 

1. Basic Salary: It is the fixed part of your salary; it forms the basis for other calculations, such as provident fund and gratuity.

• Allowances: Includes House Rent Allowance (HRA), Dearness Allowance (DA), medical allowance, and transport allowance.

• Bonuses and Incentives: Includes performance-based bonuses, annual incentives, and other rewards.

• Contributions: Includes mandatory or voluntary contributions like Provident Fund (PF) and gratuity fund. 

• Perquisites: Includes benefits like company car, accommodation, meal coupons, and health insurance.

How to Calculate CTC?

Now that you know what CTC is in your salary slip, let’s look at how to calculate it. 

Let’s use a simple illustration for this purpose: 

1. Basic Salary: ₹5,00,000 per annum

2. HRA: ₹2,00,000 per annum

3. Medical Allowance: ₹15,000 per annum

4. Transport Allowance: ₹24,000 per annum

5. Bonuses and Incentives: ₹50,000 per annum

6. Employer’s PF Contribution: ₹60,000 per annum

7. Gratuity: ₹20,000 per annum

8. Perquisites: ₹30,000 per annum

Total CTC = Basic Salary + HRA + Medical Allowance + Transport Allowance + Bonuses + Employer’s PF + Gratuity + Perquisites

Total CTC = ₹5,00,000 + ₹2,00,000 + ₹15,000 + ₹24,000 + ₹50,000 + ₹60,000 + ₹20,000 + ₹30,000

So, here the total CTC = ₹8,99,000 per annum. 

You can use the above illustration to calculate what your current CTC is. 

How Does CTC Affect Your Personal Loan Application?

Your CTC plays a crucial role in determining your loan eligibility and the amount you can borrow. Here’s how:

·         Loan Eligibility

Banks assess your repayment capacity based on what your current CTC is. A higher CTC translates to a higher income. This can increase your chances of loan approval.

·         Loan Amount

Your CTC influences the loan amount you are eligible for. A higher CTC often allows you to borrow a larger sum.

·         Interest Rates

A healthy CTC may sometimes lead to more favourable interest rates on your personal loan.

Hence, when you apply for a personal loan, banks will probably ask, “What is your current CTC?”. This information helps the bank evaluate your financial stability and determine the loan terms it can offer. 

To make your repayment strategy more effective, consider using a Personal Loan Calculator from IndusInd Bank. This tool provides an estimate of your EMIs so that you can choose the loan amount and tenure as per your budget. 

Also Read: Top-Up Loan vs. Personal Loan – Which One is the Best Option?

Conclusion

Understanding what CTC is and its components is crucial when applying for a personal loan. It influences your loan eligibility, the amount you can borrow, and the interest rates you receive. 

To have a hassle-free borrowing experience, consider opting for IndusInd Bank’s Personal Loans. Not only do we have easy eligibility criteria, but we also provide a quick, 100% digital application process. With your loan application approved instantly, the amount disbursal will be equally fast! 

So, apply for an IndusInd Bank Personal Loan now!

Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.