Figuring Out FOIR and Its Effect on Personal Loan Approval

When applying for a loan or credit card, you might come across the term FOIR. FOIR, or the Fixed Obligation to Income Ratio, is a crucial financial metric that lenders use to assess a borrower’s creditworthiness. Understanding the FOIR meaning is essential because it directly impacts your loan eligibility. In this guide, we will explain the FOIR meaning in detail, how it’s calculated, and its significance in the loan approval process.

Understanding the impact of FOIR on personal loan approval is essential to improve your chances of securing the funds you need. Essentially, FOIR is a financial metric used by lenders to assess your creditworthiness and repayment capacity. It calculates the proportion of your fixed monthly obligations, including existing loan EMIs and other fixed expenses, in relation to your monthly income. Lenders rely on FOIR to ensure that borrowers have sufficient income to meet their loan repayment obligations comfortably.

The Significance of FOIR

A low FOIR is important because it helps lenders preferentially evaluate your ability to repay a new personal loan without overburdening your finances. Lenders want to minimise the risk of default, and a high FOIR indicates that you might struggle to meet your loan obligations, making your application less attractive. 

A lower FOIR, on the other hand, suggests that you have more disposable income to allocate towards repaying the loan, increasing your chances of approval. Therefore, FOIR directly affects the following aspects of your personal loan eligibility:

  • Loan Eligibility: Lenders set maximum FOIR limits, typically around 40% to 50% of your monthly income. If your FOIR exceeds this limit, your loan application may be rejected. Therefore, maintaining a lower FOIR is crucial for eligibility.
  • Loan Amount: FOIR affects the maximum loan amount you can borrow. A higher FOIR means you’ll qualify for a smaller loan amount, while a lower FOIR allows you to borrow more.
  • Interest Rate: Lenders may offer lower interest rates to borrowers with lower FOIR, as they are considered less risky. A high FOIR could lead to a higher interest rate on your personal loan.
  • Tenure: A lower FOIR might allow you to choose a longer loan tenure, reducing your monthly EMI burden. Conversely, a higher FOIR might limit your tenure options.

How to Calculate Your FOIR Before Loan Application?

Follow these steps to figure out your FOIR so that you can prepare for your personal loan application accordingly:

Step 1: Calculate Fixed Obligations

Fixed obligations include existing loan EMIs, rent, insurance premiums, and other fixed monthly commitments.

Let’s assume you have the following fixed obligations:

  • Loan EMI for an existing personal loan: Rs. 15,000
  • Rent for your accommodation: Rs. 10,000
  • Car loan EMI: Rs. 8,000
  • Monthly insurance premium: Rs. 3,000

∴ Total Fixed Obligations = Rs. 15,000 + Rs. 10,000 + Rs. 8,000 + Rs. 3,000 = Rs. 36,000

Step 2: Consider Monthly Income

Your monthly income includes your salary, business income, or any other regular source of income you receive each month. Let’s assume that your monthly income is Rs. 75,000.

Step 3: Calculate FOIR

Now, divide the total fixed obligations (from Step 1) by your monthly income (from Step 2), and multiply the result by 100 to express it as a percentage.

FOIR = (Total Fixed Obligations / Monthly Income) x 100

FOIR = (Rs. 36,000 / Rs. 75,000) x 100

FOIR = 48%

In this example, your FOIR is 48%, meaning that 48% of your monthly income is committed to paying off fixed obligations. Lenders often have FOIR limits, and a FOIR of 48% is generally considered high, which might affect your eligibility for new loans or credit cards. It’s advisable to maintain a FOIR below the lender’s specified limit to increase your chances of loan approval.

Front-End Ratio (FOIR) and Loan Eligibility

Here’s a table depicting monthly incomes and FOIRs and the corresponding loan eligibility:

Monthly Income FOIR (Front-End Ratio) Loan Eligibility
Rs. 20,000
Rs. 6,000,000
Rs. 30,000
Rs. 8,000,000
Rs. 40,000
Rs. 10,000,000
Rs. 50,000
Rs. 12,000,000
Rs. 60,000
Rs. 14,000,000

Please note that this table is a simplified representation. Actual loan eligibility depends on various factors, including the lender’s policies, your credit score, existing debts, and the specific terms and conditions of the loan. 

Lenders may have different FOIR thresholds and may consider other financial aspects when evaluating loan applications.

How to Optimise Your FOIR for Instant Loan Approval?

If you are struggling with too many loans or insufficient income but still require a personal loan, you can take the following measures to secure a personal loan with decent terms:

-Reduce Existing Debts: Pay off or consolidate high-interest loans and credit cards to lower your FOIR. This will also improve your overall credit score.

-Increase Income: Consider ways to increase your monthly income, such as taking on a part-time job, freelancing, or exploring more lucrative investment opportunities.

-Choose Longer Tenures: Opt for longer loan tenures to reduce your monthly EMI burden, but be mindful of the overall interest cost.

-Avoid New Loans: Avoid taking on new loans or credit cards when you plan to apply for a personal loan, as this can increase your FOIR.

-Negotiate Interest Rates: Negotiate with lenders for lower interest rates, especially if you have a low FOIR and a good credit score.

-Prepayment: If possible, make prepayments on existing loans to reduce their tenures and lower your FOIR.


Understanding the significance of FOIR in the personal loan approval process is essential for anyone seeking financial assistance. A law FOIR not only enhances your eligibility but also provides you with more flexibility in loan terms and interest rates. By managing your existing debts, increasing your income, and making informed financial decisions, you can optimise your FOIR, making it a favourable factor when applying for a personal loan. Keep in mind that a healthy FOIR not only secures your loan approval but also contributes to your overall financial well-being.

Amit Arora


I am a seasoned retail banker with over 21 years of global experience across business, risk and digital. In my last assignment as Global Head Digital Capabilities, I drove the largest change initiative in the bank to deliver the end-to-end digital program with over US$1 billion in planned investment. Prior to that, as COO for Group Retail Products & Digital, I implemented a risk management framework for retail banking across the group.
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