Quick Summary: Banks use the FOIR (Fixed Obligation to Income Ratio) to decide whether to approve your loan. Most banks want your total EMI to be below 40-50% of your monthly income. Anything above this and your loan will likely be rejected.
What is FOIR?
FOIR stands for Fixed Obligation to Income Ratio. It is the percentage of your monthly income that goes toward paying all your fixed financial obligations including EMIs, rent, and other regular payments.
Banks calculate FOIR to determine how much of your income is already committed and how much is available to repay a new loan. A lower FOIR means you have more free income, which makes you a lower-risk borrower.
How to Calculate Your FOIR
FOIR = (Total Monthly EMIs / Monthly Net Income) x 100
Example: If your monthly take-home salary is $5,000 and your total monthly EMIs (including the new loan) come to $2,000, your FOIR is 40%. Most banks would approve this.
What FOIR Do Banks Accept?
| FOIR Range | Approval Chances | What It Means |
|---|---|---|
| Below 30% | Excellent | Very likely approved, may get lower interest rate |
| 30% to 40% | Good | Likely approved by most banks |
| 40% to 50% | Borderline | Some banks may approve, others may reject |
| Above 50% | Poor | Most banks will reject the application |
How to Improve Your FOIR Before Applying
- Pay off existing loans before applying for a new one
- Increase your income by adding a co-applicant such as a spouse
- Choose a longer tenure to reduce the EMI of the new loan
- Make a larger down payment to reduce the loan amount and therefore the EMI
- Close unused credit cards as banks count the credit limit as potential obligation
Check Your EMI and FOIR Instantly
Use our free EMI calculator to find out exactly what your monthly payment will be and whether your FOIR will qualify.