Understanding FOIR (Fixed Obligation to Income Ratio)
When you apply for any loan, lenders do not just check your total salary; they evaluate your disposable income. FOIR measures the percentage of your monthly net income committed to servicing existing debts and mandatory obligations.
The FOIR Mathematical Formula
FOIR = (Total Existing Monthly EMIs + Proposed New EMI) / Net Monthly Income × 100For example, if your in-hand salary is ₹80,000 per month and your current EMIs equal ₹24,000:
- Current Obligations: ₹24,000
- Current FOIR: 30% (₹24,000 / ₹80,000)
- Maximum Permitted FOIR (at 50% limit): ₹40,000
- Available headroom for new EMI: ₹16,000/month
How to Lower Your FOIR Before Applying
- Close Small Personal Loans & Credit Card EMIs: Paying off outstanding small-ticket loans frees up immediate ratio capacity.
- Opt for a Longer Tenure: Stretching your loan term lowers the monthly EMI amount, fitting comfortably into the bank's maximum FOIR threshold.
- Add a Co-applicant: Adding a working spouse, parent, or sibling combines income and drastically expands borrowing headroom.
- Declare Additional Income Streams: Include rental income, legitimate freelance earnings, or annual bonuses recognized by the lender.