FOIR Explained: What Is Fixed Obligation to Income Ratio?

When you apply for a personal loan, home loan, or any type of credit, banks don’t just look at your salary. One of the most important factors they evaluate is FOIR, which stands for Fixed Obligation to Income Ratio.

Simply put, FOIR helps banks decide how much EMI you can comfortably afford without putting pressure on your monthly finances.

What Is FOIR?

FOIR (Fixed Obligation to Income Ratio) is the percentage of your monthly income that goes toward fixed financial commitments, such as:

• Existing loan EMIs
• Credit card minimum dues
• Proposed new loan EMI

FOIR Formula:

• FOIR = (Total Monthly Obligations ÷ Monthly Income) × 100

Example to Understand FOIR

Let’s say:

• Monthly net income: ₹50,000
• Existing EMIs: ₹10,000
• Proposed new loan EMI: ₹8,000

Total obligations = ₹18,000

FOIR = (18,000 ÷ 50,000) × 100 = 36%

This means 36% of your income is committed to EMIs.

Ideal FOIR Limits

Different lenders follow slightly different norms, but generally:

• Up to 40% FOIR: Very good – higher approval chances
• 40%–50% FOIR: Acceptable – approval possible
• Above 50% FOIR: Risky – chances of rejection increase

For high-income borrowers, banks may allow a slightly higher FOIR since living expenses are proportionately lower.

Why FOIR Is Important for Loan Approval

Banks use FOIR to ensure that:

• You have enough income left for daily expenses
• You don’t become overburdened with EMIs
• Risk of default is minimized

Even with a good credit score, a high FOIR can lead to lower loan amount or rejection.

How FOIR Impacts Your Loan Amount

Higher FOIR =

• Lower eligible loan amount
• Higher chances of rejection

Lower FOIR =

• Higher loan eligibility
• Better interest rates
• Faster approvals

That’s why managing EMIs smartly is just as important as earning well.

How to Improve Your FOIR

Here are practical steps to reduce FOIR before applying for a loan:

• Close small existing loans
• Clear credit card dues
• Increase tenure of existing loans (if possible)
• Apply jointly with a co-applicant
• Avoid multiple loan applications at once

These steps can significantly improve approval chances.

FOIR vs Credit Score: Which Is More Important?

Both matter, but FOIR decides affordability, while credit score reflects repayment behavior. Even with a 750+ credit score, a high FOIR can stop loan approval.

Contact Us

Confused about your FOIR or unsure how much loan EMI you can afford? At Direct Credit, we calculate your FOIR accurately and match you with lenders that fit your income profile. Whether it’s a personal loan, home loan, or balance transfer, we help you improve eligibility and get faster approvals.

Call us at 9010031003 for expert guidance and stress-free loan processing.