Impact of FOIR on Personal Loan

Posted on Thursday, August 14th, 2025 | By IndusInd Bank

When applying for a personal loan, several factors come into play — your credit score, income, employment stability, and repayment history. But there’s one crucial metric lenders consider that many borrowers are unaware of — FOIR or Fixed Obligations to Income Ratio. It plays a significant role in determining your personal loan eligibility.

In this blog, we’ll explore what FOIR means, how it impacts your personal loan application, how it’s calculated, what an ideal FOIR looks like, and how you can reduce it to improve your chances of loan approval.

What is FOIR?

FOIR (Fixed Obligations to Income Ratio) is a financial indicator that shows the percentage of your monthly income that goes toward fixed obligations like EMIs, credit card dues, and other loans. It helps lenders assess your repayment capacity. A lower FOIR means you have enough disposable income to take on new debt, while a higher FOIR indicates that a significant portion of your income is already committed to existing liabilities.

In simple terms, FOIR reflects how much of your income is already being used and how much is available to pay off a new personal loan EMI.

How Does FOIR Impact Personal Loan?

FOIR is one of the primary eligibility criteria for personal loans. Since personal loans are unsecured (not backed by collateral), lenders are more cautious when evaluating an applicant’s repayment ability. Here’s how FOIR affects your personal loan application:

• Loan Approval: A high FOIR often results in rejection of the loan application, even if your credit score is good. Lenders need to ensure you won’t be overburdened with EMIs.
• Loan Amount: FOIR determines how much loan you’re eligible for. A lower FOIR can make you eligible for a higher loan amount.
• Interest Rate Offered: If your FOIR is within the ideal range, lenders may offer you better interest rates as you’re perceived to be a low-risk borrower.
• EMI Affordability: FOIR helps lenders decide the EMI amount you can reasonably afford without straining your finances.

How is FOIR Calculated?

Here’s the formula used by most banks and financial institutions to calculate FOIR:

FOIR (%) = (Total Monthly Obligations / Net Monthly Income) × 100

Where:

Total Monthly Obligations = All existing EMIs (home loan, car loan, education loan, personal loan, credit card dues, etc.)

Net Monthly Income = Your take-home salary after taxes and deductions

Example:

Suppose your monthly income is ₹70,000, and your existing EMIs total ₹28,000.

FOIR = (28,000 / 70,000) × 100 = 40%

This means 40% of your monthly income is already committed to loan repayments.

Interpreting FOIR

Understanding what your FOIR says about your financial health is important when applying for a personal loan.

Low FOIR (Below 30%)

• Indicates low financial burden
• Higher chances of loan approval
• More room for additional borrowing
• Better negotiation power for interest rates
• Viewed positively by lenders

High FOIR (Above 50%)

Indicates a large portion of income is already committed to EMIs

• Risky from a lender’s perspective
• Loan application may be rejected
• May result in a lower approved loan amount
• Even if approved, interest rates could be higher

Ideal FOIR (30% – 40%)

Considered a balanced ratio by most lenders

• Suggests that the borrower is financially stable
• Suitable for taking a new personal loan
• Banks are more likely to approve applications with FOIR in this range

Note: Some banks may allow a slightly higher FOIR (up to 50–60%) if your income is high, or you have a stable employment record with a reputed organization.

Also Read: What is FOIR?

How to Reduce FOIR

If your FOIR is too high, don’t worry. There are smart ways to bring it down and improve your personal loan eligibility:

Repay Existing Debts

Try to close smaller loans or consolidate high-interest debts. Reducing your current EMI burden will automatically bring down your FOIR.

Increase Your Income

If you’ve recently received a raise, bonus, or have additional income sources (like rent or freelance work), report them. A higher net income will reduce your FOIR percentage.

Opt for a Longer Tenure Loan

Increasing the tenure of your new personal loan can lower the monthly EMI amount, thus keeping your FOIR within the acceptable range.

Avoid Multiple Loan Applications

Applying for several loans or credit cards at once can impact your credit score and increase your FOIR. Apply only when necessary.

Refinance High-Interest Loans

If you’re paying a high EMI due to high interest, refinancing or transferring the loan to a lower interest rate lender can reduce your monthly obligation.

Choose a Joint Loan

Adding a co-applicant with a stable income can increase the total income considered for FOIR calculation, thus lowering your individual FOIR.

Final Word

Before applying for a personal loan, take time to calculate your FOIR and take corrective steps if needed.

Maintaining a healthy balance between your income and obligations not only improves your chances of getting a personal loan but also ensures long-term financial stability. Always borrow within your means, and use FOIR as a tool to keep your debt under control.