The Fixed Obligation to Income Ratio (FOIR) is one of the most important financial metrics used by banks and NBFCs to assess a borrower’s loan eligibility. Whether you are applying for a personal loan, home loan, car loan, or credit card, lenders closely evaluate your FOIR before approving or rejecting your application.
In this comprehensive guide, we will explain what FOIR is, how it is calculated, why it matters, what is a good FOIR ratio, and how you can improve your FOIR to increase your chances of loan approval.
Fixed Obligation to Income Ratio (FOIR) is the percentage of a borrower’s monthly income that goes towards fixed financial obligations. These obligations include EMIs of existing loans, credit card dues, and other regular debt repayments.
In simple terms, FOIR helps lenders understand how much of your income is already committed and whether you can comfortably handle an additional loan.
FOIR = (Total Monthly Fixed Obligations ÷ Monthly Income) × 100
The lower your FOIR, the better your financial stability appears to lenders.
Fixed obligations are recurring payments that you must make every month, regardless of your income fluctuations.
Expenses such as rent, groceries, electricity bills, and lifestyle expenses are generally not included in FOIR calculations.
Banks calculate FOIR by adding all your existing EMIs and fixed debt repayments and dividing the total by your net monthly income.
Suppose your monthly income is ₹50,000 and your existing EMIs total ₹20,000.
FOIR = (20,000 ÷ 50,000) × 100 = 40%
This means 40% of your income is already used to repay fixed obligations.
FOIR is a key risk assessment tool for lenders. It helps them determine whether you can repay a new loan without financial stress.
Even applicants with a good credit score may face rejection if their FOIR is too high.
An acceptable FOIR ratio varies across lenders and loan types, but general benchmarks are followed in the Indian lending market.
Most banks prefer a FOIR of 40% or lower for unsecured loans like personal loans and credit cards.
FOIR and credit score are often confused, but they measure different aspects of financial health.
A strong loan application requires both a healthy FOIR and a good credit score.
If your FOIR is high, there are several steps you can take to improve it before applying for a loan.
Paying off smaller EMIs can significantly reduce your fixed obligations.
Taking additional loans or credit cards increases your FOIR instantly.
Salary hikes, freelance income, or additional income sources can lower your FOIR.
Loan consolidation can reduce EMI burden and improve FOIR.
High credit card dues increase monthly obligations and negatively affect FOIR.
FOIR limits may vary depending on the type of loan you are applying for.
The Fixed Obligation to Income Ratio (FOIR) is a critical factor that directly affects your loan eligibility and approval chances. Maintaining a healthy FOIR not only improves your chances of getting loans approved but also ensures long-term financial stability.
By managing debt wisely, avoiding unnecessary credit, and planning finances strategically, you can keep your FOIR under control and build a strong financial profile.