When you apply for a loan, lenders don’t just look at your salary and credit score — they also check how much of your income is already committed to EMIs and monthly expenses.
This powerful indicator is called your FOIR: Fixed Obligations to Income Ratio.
FOIR plays a crucial role in whether your loan is approved, rejected or approved with conditions.
Simply put:
👉 High FOIR = High risk for the bank
👉 Low FOIR = High approval chances
Let’s understand why this single number decides your loan fate.
What Is FOIR?
FOIR shows how much of your monthly income goes toward:
Current EMIs
Credit card bills
Loan repayments
Fixed monthly commitments
Rent (in many cases)
FOIR formula:
FOIR = (Total Monthly EMIs / Net Monthly Income) × 100
Example:
If you earn ₹40,000 per month and EMI obligations are ₹15,000:
FOIR = 15,000 ÷ 40,000 × 100 = 37.5%
Most lenders prefer FOIR below 40%.
Why Lenders Care About FOIR
1. It Reflects Your Repayment Capacity
Lenders want to ensure you have enough money left after EMIs to manage normal expenses.
A low FOIR shows you can comfortably handle another loan.
2. It Protects Banks From Defaults
High FOIR means:
Higher financial stress
Less savings
Higher default probability
Banks use FOIR to control risk and avoid bad loans.
3. Better FOIR = Better Loan Terms
If your FOIR is strong, lenders offer:
Lower interest rates
Higher loan amounts
Longer tenure flexibility
Faster approval
Good FOIR improves your negotiation power.
4. FOIR Predicts Long-Term Financial Stability
Even if you have a high credit score, banks check FOIR to ensure your finances are balanced.
A borrower with low FOIR is seen as more stable and reliable.
What FOIR Do Banks Prefer?
Most lenders follow the below benchmarks:
30%–40% FOIR → Ideal (High approval chances)
40%–55% FOIR → Risky (Approval possible with conditions)
Above 55% FOIR → High risk (Most applications rejected)
For self-employed borrowers, criteria may vary slightly.
How FOIR Impacts Different Types of Loans
Personal Loan
Strictest rules → FOIR ideally below 40%
Home Loan
Banks may allow up to 50% FOIR due to longer tenure and security
Car Loan
FOIR limit around 45–50%
Credit Card Limit Increase
FOIR must be healthy for limit enhancement
How to Improve Your FOIR Before Applying
✔ Close small loans
Clearing even one EMI can significantly reduce FOIR.
✔ Reduce credit card outstanding
High card dues increase your obligations.
✔ Increase loan tenure
Lower EMI = Lower FOIR.
✔ Show additional income
Rent income, incentives or variable pay may help.
✔ Avoid multiple loan applications
Too many EMIs will push FOIR above the accepted range.
✔ Add a co-borrower
This divides the FOIR burden and increases approval chance.
Why FOIR Helps You Too
FOIR is not just for lenders — it protects you from:
Over-borrowing
Excess EMI burden
Financial stress
Missed payments
Credit score drops
A balanced FOIR ensures financial health and peace of mind.
FAQs
Q1. What is a good FOIR for loan approval?
Below 40% is ideal for most loans.
Q2. Does FOIR matter even if my credit score is high?
Yes, lenders check both capacity (FOIR) and credibility (credit score).
Q3. How do I calculate my FOIR?
FOIR = Total EMIs ÷ Net Monthly Income × 100.
Q4. Can FOIR be increased?
You don’t increase FOIR — you lower it by reducing EMIs or increasing income.
Q5. Does rent count in FOIR?
In many banks, yes — rent is considered a fixed obligation.
Published on : 15th November
Published by : SMITA
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