The acronym FOIR stands for “fixed obligation to income ratio.” It is a common metric used by financial institutions when determining whether to grant a loan. The ratio of your monthly payments to your monthly gross income.
To determine the FOIR, banks and other lending institutions consider the applicant’s income in addition to any outstanding loan payments. It also considers the Equated Monthly Installment (EMI) of the potential loan.
The calculation for a personal loan
FOIR calculation= [Sum of Existing Fixed Obligations /Monthly Income] X 100
How does the fixed obligation to income ratio affect your loan eligibility?
To have a lower FOIR, you must have:
- fewer liabilities
- increased disposable income
- better repaying capacity
- higher chances of approval
What should I do if my fixed obligation to income ratio is high?
Submit a loan application that includes a cosigner. In this case, your chances of getting a loan are improved.
A bank will check your credit history by submitting an inquiry to the credit bureau whenever you apply for a loan or line of credit. These inquiries are recorded and shown on your credit report, lowering your score. An excessive number of these inquiries can hurt your credit. Therefore, you should figure out your FOIR before making a loan application.
Do All Banks Have a Standard FOIR?
While Fixed Obligations to Income Ratio margins vary by lender and scenario, most banks require a FOIR of 40% to 60% for loan eligibility. This can rise to 65% to 70% for high-net-worth customers.
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