When individuals apply for a loan with a financial institution, the application goes
through thorough scrutiny before receiving approval. Besides checking the
applicant’s essential documents, assets and liabilities, and past credit behavior,
lending institutions also review the individual’s FOIR (Fixed Obligations to Income
Ratio). Hence, one needs to gain a clear understanding of what is FOIR before
making a loan application.
The details given below can help one understand the FOIR meaning
comprehensively, for an informed decision regarding a suitable loan amount.
Also discussed is the process by which FOIR is calculated. Therefore, one can easily
understand how to maintain an ideal FOIR to avail a personal loan from a reliable
the lending institution at favorable terms.
Meaning and calculation of FOIR
Lenders determine an individual’s loan eligibility based on several parameters, FOIR
or Fixed Obligations to Income Ratio being one of them. It is included in the
verification process of your personal loan. This parameter is essential to assess a
borrower’s disposable income to understand if he/she will be able to repay the loan
conveniently in easy EMIs.
While calculating FOIR, the part of a borrower’s monthly income that goes towards
EMI payment, debt repayment, or any other obligation is considered. The lending
institution also takes into consideration the EMI of the prospective loan during FOIR
However, there are certain exemptions to FOIR, and these include
statutory deductions like taxes, insurance, recurring deposits, etc.
With this understanding of what is FOIR and how it is calculated, the following
examples might be helpful to understand the concept.
Examples of FOIR calculation
Along with the FOIR meaning, its computation can be understood with the help of the
(Sum of all obligations/Total monthly income) * 100
For instance, ‘A’ has a monthly income of Rs.50,000. ‘A’ pays an EMI of Rs.15,000
to repay an auto loan and also spends Rs.15,000 on house rent. So, ‘A’ has a fixed obligation of Rs.(15,000+15,000) = Rs.25,000. Hence, ‘A’ will hold a FOIR of
= (30,000/50,000) * 100 or 60%.
If ‘A’ applies for a loan with this FOIR, it is highly likely that the loan application will
In another similar example, ‘B’ has a total monthly payment of Rs.50,000 and fixed
obligations equivalent to Rs.20,000. ‘B’, therefore, has a FOIR of 40%. The likelihood
of approval of ‘B’s loan application increases when applying for a loan with the FOIR.
Now, to understand what is FOIR and how its value affects loan applications, it is
also ideal to know the standard value for FOIR first.
Financial institutions might require different FOIRs for separate loan products.
However, the ideal FOIR required for loan products like personal loans is fixed at
How does FOIR affect a loan application?
Financial institutions usually reject loan applications if the FOIR is above 50%. It
means that a person with a high FOIR has significantly higher fixed obligations
compared to his/her monthly income, thus reducing his/her repayment capacity.
A high FOIR value also indicates that the borrower’s disposable income is low, and
he/she is likely to default on EMI payments.
A lower FOIR value, on the other hand, can be beneficial for prospective applicants
as it indicates the following:
● Higher disposable income
● Fewer obligations
● Improved chances of loan approval and sanction
● Higher loan repayment capacity
Hence, the examples of ‘A’ and ‘B’ should now be clear for the understanding of
what are FOIR and its ideal value?
Things to do if FOIR is high
Lending institutions are not likely to approve loan applications if the FOIR is above
50%. If an individual has a high FOIR, he/she can thus apply for the loan with a co-
applicant. This does not guarantee loan approval but can increase the chances of
approval. However, the co-applicant must be employed and should be a
Other measures include repaying existing debts, aggregating
and documenting all income sources, etc.
Maintaining an ideal FOIR is essential if an individual wishes to avail of a loan at
favorable terms. One should also know how to choose the right personal loan
lender before applying.
Lending institutions like Bajaj Finserv offer low-interest personal loan that makes a loan
repayment convenient and affordable.
The lender also extends pre-approved offers to make financing time-saving for loan
products such as personal loans, business loans, and credit cards. Through such
offers, one can experience loan processing with minimum hassles. Individuals can
check their pre-approved offer easily by entering their name and phone number.
Hence, it is clear that possessing a standard FOIR of 50% or lower is essential to
avoid loan rejection and improve the chances of availing of a loan at favorable
terms. Therefore, it is crucial that one thoroughly understands what is FOIR and how
it impacts loan eligibility before applying for a loan.
While understanding the FOIR meaning for loan approval, one should not, however,
forget that factors like CIBIL score and past credit behavior also weigh
considerably. Make sure to fulfill all other eligibility criteria as well before applying to
improve your chances of loan approval.