FOIR Calculator (Fixed Obligation to Income Ratio)

What is FOIR (Fixed Obligation to Income Ratio)?

FOIR stands for Fixed Obligation to Income Ratio, and it plays a crucial role in determining your loan eligibility. Financial institutions use FOIR to assess how much of your monthly income is already committed to fixed obligations like EMIs, rent, or other loans. A lower FOIR indicates better financial health and increases the chances of getting approved for personal, home, or business loans.

HOW FOIR helps decide Loan approvers?

To this end, FOIR is used by lenders to assess the repaying capacity of the borrower. A FOIR between the ratios of 30-50% is ideally preferred by the lenders. If FOIR is more than this range, the credit application might be rejected or even the loan amount might be limited, because banks would be extremely hesitant to lend for such a FOIR. Some specific lenders might approve even if you have a FOIR of 60 to 70, if you are a high net worth individual.

How is FOIR calculated?

You can use the following method to calculate the FOIR

FOIR= Total Fixed Obligations/ Net Monthly Income ​× 100

An individual has applied for a personal loan of Rs. 5 Lakhs for five years. If his monthly income is Rs. 70000 and his fixed expenditures include the following

• Rs. 3000 towards bike loan
• Rs. 12000 towards House Loan
• Other expenses Rs. 8000
• Loan EMI (assuming it is approved) is Rs. 11248

In this case, your FOIR falls between the ideal 30-50% as required where your possibility to get loan approved is high. Now you can understand the importance of maintaining a reduced FOIR, as it directly correlates with higher chance of getting your loan approved. A Lower FOIR indicates financial stability increases your chance for loan approval. Conversely, a higher FOIR may raise concerns about your potential repaying capacity and thus play spoilsport on your loan chances

Kindly note that FOIR calculates exclude tax commitments and contributions to savings such as FD and RD.

Interpreting your FOIR Score

Interpreting Your FOIR is an important process in finding out the amount of loan which you are likely to be eligible for. Holding a low FOIR, usually in the range of less than 50% is preferred by lenders. It means that you cash flow is enough to meet the reimbursement on the new loan. On the contrary, FOIR of over 50% indicates that you are under financial strain. This can categorize you as a high risk applicant meaning they may not approve your loan or even approve it at much higher interest rate.

The Importance of FOIR Calculation in Loans

FOIR (Fixed Obligation to Income Ratio) is one of the most important factors that are taken into consideration when determining loan repayment ability by loan givers. This ratio is the proportion of your monthly income that is spent on meeting fixed expenditure including house rent, existing instalment on any assets, credit card outstanding amounts etc. Lenders require a low FOIR because it will portray an indication that you will be in a position to meet the payments of another loan. A high FOIR may deny you a loan or else charge a higher interest for the loan while a low FOIR increases your chances of getting a loan at a better interest rate. Understanding the FOIR ratio before applying for loan helps you to secure the funds and would possibly result in more success of loan. An ideal FOIR of 30% - 50% is required for successful processing of loan

Tips to Improve Your FOIR

• Clear Existing Debts: Multiple debts can have a direct bearing on your FOIR and paying off the debts will get your FOIR ratio in order to meet your loan
• Increase Your Income Sources: These sources increase your FOIR because they balance some of the obligations that may have been overwhelming and help you close multiple loans if any
• Limit New Credit Applications: Do not go for other loans and credit cards because they count as FOIR.
• Extend Loan Tenure: As far as possible, it would be desirable to extend the term on existing loans so that the monthly payments for them would be lower and you would have sufficient credit to repay the loan
• Refinance with Lower Interest Rates: If you are struggling to repay the loan because of higher interest charges, consider Balance transfer to consolidate your loan so that you may repay at a lower interest charges
• If you follow these tips, you’ll be able to keep your FOIR more balanced and have a chance to secure better loans

How Lenders Calculate FOIR

FOIR is determined by adding your fixed monthly obligations to your fixed obligations including the EMIs on your existing loans, your rent and other fixed expenses, divided by your monthly income. Here’s the formula:

FOIR= Total Fixed Obligations/ Net Monthly Income ​× 100

For instance, if your total monthly income is ₹50,000, and your fixed obligations include rent, loan come to ₹20,000, then your FOIR will be of 40% a month. Most lenders like the FOIR to range from 30-50% depending on the applicant’s salary, although a slightly higher rate may be acceptable for the self-employed.

FAQ On FOIR

1. What is the ideal FOIR for loan approval?

Most lenders prefer a FOIR in the range of 40-50% to ensure you have sufficient funds for repayment

2. Does a High FOIR affect your loan eligibility?

Yes, a higher FOIR reduce your loan eligibility as it indicates you are in higher debt burden

3. Is Tax and savings included in calculating FOIR?

No, Tax and savings are not taken into account for FOIR calculation

4. Is FOIR applicable for all loan types?

FOIR is primarily used for unsecured loans like personal loans, but some banks may also use it for other loans.

5. How can I lower my FOIR?

Reducing fixed obligations like closing your loans, minimizing your expenses can lead to better disposable expenses, which in turn can boost your FOIR