Let us start by understanding what FOIR is. The full form of FOIR is ‘Fixed obligations to income ratio’. It is the most commonly used parameter by lenders to determine the loan eligibility of an applicant. In simpler words, it is the debt-to-income ratio. Lenders analyse the financial history of potential loan borrowers in order to check whether they will be able to repay it or not.
On an average, FOIR should be between the range of 40% to 55%. Borrowers’ capacity to repay loans is the most important basis of consideration for a personal loan. There are eligibility criteria to be met when it comes to approving loans. Lenders have to ensure that borrowers have the financial capacity to repay the borrowed loan in time as per committed equated monthly instalments (EMIs).
Thus, an applicant’s FOIR becomes the cornerstone of deciding whether to process a loan application. Lower FOIR means that the applicant’s net monthly obligations are significantly lower than their income. This reflects a better repaying capacity of the applicant. Thus, lower the FOIR, the higher are your chances of loan approval. If you have a low FOIR, it highlights that you have fewer obligations and are not heavily in debt. It therefore automatically increases your disposable income by enhancing your repaying capacity. It also shows that you are a responsible borrower who is not deeply in debt.
Lenders analyse your credit history, sources of income, assets, and liabilities. Lenders look into every detail of income as well as instalments of all current loans the applicant is still paying. So once lenders check FOIR, they even gather details like credit history of the applicant, income, savings history, annual tax, etc.
By now we know that FOIR directly affects personal loan eligibility. Lenders have to be sure of the financial capability to repay the borrowed loan and this is the way they assess FOIR:
FOIR = Total debt / monthly salary
It is essentially calculated just like its full form - Fixed obligations to income ratio. It is a total of all existing expenses divided by all income. This amount is multiplied by 100. All expenses include monthly fixed and variable expenses, credit card payments, existing EMIs, etc. All incomes include salaries, rental income, etc.
There are a few checks you can complete at your end itself, for a successful personal loan application:
You can apply for a personal loan online easily after arranging the documents required for it. All you have to do is
Once you have these documents for personal loan in place, you can apply for a personal loan online.
We have seen all the factors that impact FOIR and we have seen the importance of FOIR, which is the most important factor for lenders to decide your personal loan eligibility. Maintaining a healthy credit history is the key to lower your FOIR and get a personal loan easily.
You can take our personal loan for a variety of reasons.