Net Monthly Income: Know how to calculate it

  • Published on: 25 Apr 2024
Net Monthly Income: Know how to calculate it

Your Net Monthly Income or NMI, is an important factor to consider when you opt for a loan. It is an essential component for you and the lender, as it determines your repayment capacity and loan eligibility. So, it is imperative to understand how NMI works and how to calculate it to make an informed decision.

Read on to know what is NMI, how to calculate it, why it’s important and more.

Understanding Net Monthly Income (NMI)

Net Monthly Income or NMI refers to your monthly income after deducting all financial liabilities, including monthly expenses, loan EMIs and taxes. Here are some key points about NMI:

  • NMI is a crucial aspect that lenders consider when evaluating your eligibility for a loan.
  • Lenders assess your NMI to understand whether you can cover your regular expenses and monthly loan repayments with ease.
  • Lenders divide your EMI by NMI to calculate the EMI-NMI ratio.
  • An accurate assessment of NMI helps lenders mitigate default risk and prevents you from taking on additional debts.

Calculation of Net Monthly Income (NMI) in Loans

Here’s a step-by-step process on how to calculate NMI:

  • Calculate Your Gross Monthly Income: Start by computing your total monthly gross earnings by adding income from all sources, like your base salary, allowances, and other sources.
  • Deduct the Expenses: Subtract the expenses from your gross monthly income, such as taxes, contributions to provident funds, living expenses and any other obligations.
  • Assess Your Net Monthly Income: After deducting these mandatory expenses from your gross income, you get your NMI.
  • Verify the Calculations: Cross-check the calculations to ensure consistency and avoid confusion that can lead to rejections.
  • Apply for a Loan: Once you calculate your NMI, you can apply for a loan after checking your eligibility.

Importance of Net Monthly Income (NMI) in Loans

Here’s how calculating NMI is beneficial while borrowing any form of credit:

  • Indicates Your Financial Standing: With NMI, lenders can check whether you have adequate disposable income to cover the EMI of the loan you’re applying for.
  • Determines Your Eligibility for a Loan: Some lenders set a minimum NMI requirement for loans, so calculating your NMI helps you check if you qualify.
  • Influences Loan Terms: If your NMI is lower, lenders may charge you higher interest rates to cover the default risk. On the other hand, if your NMI is higher, you can get more favourable loan terms.
  • Varies for Different Types of Loans: The minimum NMI requirement for loans depends on the type of loan you need and the lender that you have chosen.
  • Improves Your Approval Chances: If you have a higher NMI, you will enjoy higher chances of loan approval as lenders consider you a creditworthy borrower. Conversely, lenders may reject your application if you have a lower NMI, as they may doubt your repayment capacity.

As you can see, your net monthly income determines whether your loan will get approved. Most lenders have minimum NMI requirements that you need to meet to qualify for a loan. If you’re looking for a lender with low NMI requirements, you can consider getting an Instant Cash Loan from Fibe.

You can get a loan of up to ₹5 lakhs with an income requirement of just ₹18,000 per month. To get quick access to funds at competitive interest rates, install our Instant Loan App today or register on our website. 

FAQs on Net Monthly Income (NMI)

What is the NMI ratio for loans?

It is a ratio computed by dividing your EMI by your NMI. With this ratio, lenders assess whether you have adequate NMI to cover:

  • Monthly living expenses, including house rent, utility bill payments, groceries, etc.
  • Mandatory payments like income tax, contributions towards insurance premiums, provident fund, etc.
  • EMI payments associated with the loan you’re applying for

How is NMI calculated?

Here’s how your NMI is computed:

  • Calculate your total monthly earnings from all sources
  • Subtract necessary deductions like taxes, PF contributions, etc.
  • You get your NMI after deducting all mandatory and living expenses
  • Double-check the calculations for consistency to prevent rejections due to errors
  • Use the calculated NMI to assess your eligibility and apply for a loan

What is the full form of NMI in finance?

NMI stands for Net Monthly Income, which is the amount that you arrive at after deducting all financial liabilities.


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