## What is FOIR? How does it impact personal loan approval?

Banks and financial institutions judge a loan applicant’s creditworthiness before approving their application, especially for unsecured loans such as. FOIR is a metric that helps banks and financial institutions do this. FOIR’s full form is a fixed obligation-to-income ratio. FOIR helps a lender determine whether you have the necessary repayment capacity.

In a nutshell, FOIR measures your fixed monthly outgo as a percentage of your net monthly income. The result indicates your disposable income and whether or not it will be sufficient for loan repayment. As the risk borne by a lender is higher in the case of unsecured loans, your FOIR holds significant weight when a lender is assessing your personal loan eligibility. The FOIR calculation also includes EMIs payable towards a prospective loan an applicant has requested with the lender. It is also known as the debt-to-income ratio. Use our Personal Loan EMI Calculator to calculate your EMIs.

Ideally, your FOIR must be between 40% and 50%. This means that your total monthly expenses should not be more than 50% of your income. Specific lenders consider FOIR which goes up to 65% or even 70% for those with a high net worth.

## How is FOIR calculated?

You can use the following formula to calculate FOIR.

Understand it with the help of the following example:
An individual has applied for a personal loan of Rs. 5 lakh for five years. If his net monthly income is Rs. 80,000 and his fixed expenditures include the following:

• Rs. 5,000 as EMI towards a car loan
• Rs. 7,000 as EMI towards a home loan
• Monthly rent equals Rs. 8,000
• Other fixed payments comprise Rs. 8,000

Also, the EMI calculated for his prospective loan is Rs. 11,377.
His FOIR = (5,000 + 7,000 + 8,000 + 8,000 + 11,377)/80,000 x100 = 49.2%.
Here, fixed monthly obligations include:

• Credit card payments
• Existing EMIs
• Rent payments
• Monthly living expenses
• EMI of the loan that you are applying for
• Other debt obligations, if any

However, contributions to fixed or recurring deposits and taxes payable are not considered fixed monthly obligations.

## How does FOIR affect personal loan approval?

Maintaining low FOIR impacts your finances in the following ways:

• Reduces the total liabilities
• Disposable income increases
• Improves repayment capacity

Such factors favour an applicant’s creditworthiness, thus improving his/ her chances of getting loan approval.

Individuals with a higher FOIR can improve their approval chances by employing the following techniques:

• Pay off an outstanding loan liability.
• Apply with a co-signer who holds a low FOIR.
• Fulfil all other eligibility criteria laid down by the selected lender.
• Disclose any other regular source of income to the lender.

If your FOIR is high, take measures to reduce it before applying for a loan. Typically, with a high credit score and low FOIR, you can conveniently secure ample funds through a personal loan.