Understanding the Concept of Foir

What is Fixed Obligations to Income Ratio or FOIR? How can it impact your loan eligibility? Read on to know these answers.

1. Understanding the Concept of
FOIR
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2. FIXED OBLIGATIONS TO INCOME RATIO (FOIR)
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FOIR is a popular parameter that banks use to determine the loan eligibility of the
applicant. It is not a new concept as the banks used the term ‘net take-home pay’ to denote
a similar qualifying ratio. Under the FOIR concept, the bank considers the instalments of all
loans availed by the applicant and still due. It also accounts for the Equated Monthly
Instalment (EMI) of the prospective loan under consideration.

3. STANDARD FOIR
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Banks have different FOIR for different loans. It can be 50% for a Personal Loan whereas
the requirement can be 35% to 40% for a Home Loan. Usually, the banks fix up the FOIR as
50%. It also depends on the income earning capacity of the applicant. You cannot equate a
person earning 30,000 per month with a person earning 2,00,000 a month. Banks are
flexible enough in this regard by tweaking the FOIR accordingly.

4. REVERSE CALCULATION
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The principal objective of arriving at the FOIR is that it enables the bank to do a reverse
calculation to determine the eligibility for a loan.
This example should make things clear:
Mr. A is earning an income of 90,000 per month. He is servicing a Personal Loan instalment
of 8,000 and a car loan instalment of 6,000 directly from the bank account. Let us Calculate
the FOIR.
50% of 90,000 = 45,000
Car loan EMI = 6,000
Personal Loan EMI = 8,000
The disposable income for this loan is 31,000
Therefore the bank can fix up the loan eligibility in such a manner that the EMI does not
exceed 31,000

5. WHAT IS THE TAKEAWAY FROM THIS EXAMPLE?
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The example indicates that the applicant is eligible for a Home Loan amount that would
entail a repayment up to 31,000. Using the Home Loan Calculator, you can do the reverse
calculation easily. It will also enable you to compare various banks and settle for the one
that offers the maximum loan eligibility.
One way of increasing the loan eligibility is to opt for a longer tenure. Alternatively, you
should try to close your Personal Loan or car loan whereby you increase your capacity to
repay.

6. HOW DOES THE FOIR AFFECT YOUR LOAN ELIGIBILITY?
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The lower the FOIR, the higher are your chances of approval. When you have a low FOIR, it
entails that you have fewer liabilities. It automatically increases your disposable income
thereby enhancing your repaying capacity. 
The concept of FOIR has enabled the self-employed professional and non-professionals to
become eligible for various loans from banks and Non-Banking Financial Companies
(NBFCs). The concept is more beneficial to this class of borrowers because these applicants
do not have a consistent income.

7. HOW DOES THE FOIR AFFECT YOUR LOAN ELIGIBILITY?
MYMONEYMANTRA
The lower the FOIR, the higher are your chances of approval. When you have a low FOIR, it
entails that you have fewer liabilities. It automatically increases your disposable income
thereby enhancing your repaying capacity.
The concept of FOIR has enabled the self-employed professional and non-professionals to
become eligible for various loans from banks and Non-Banking Financial Companies
(NBFCs).

8. THE ROLE OF MYMONEYMANTRA
MyMoneyMantra, an online loan services provider, can help calculate the FOIR for the
applicants and guide them towards the banks that offer higher chances of approval of
loans. You can use the services of the EMI calculators at this website to determine your
future EMI and Calculate Your Home loan Eligibility.

9. MYMONEYMANTRA
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