Personal Loan

FOIR: Meaning And Effect on Personal Loan Approval


Loan credit managers at financial institutions use different methods to determine loan eligibility and risk factors. In this way, FOIR is a valuable tool for lenders to assess the borrower’s ability to repay the loan and avoid default. The ratio also helps lenders understand applicants’ risk profiles and make better financial decisions.

The fixed obligation to income ratio, also known as FOIR, is a metric used to determine your chances of getting a loan. The lower your FOIR, the more likely it is that you will be eligible.

What Makes FOIR a Vital Parameter?

FOIR is also referred to as the Debt Service Coverage Ratio (DSCR). This is the ratio between your monthly income and your monthly debt payments, including all loans and credit card payments.

A high FOIR means that you’ll have a harder time getting approved for a loan because it shows that you’re already spending more than you earn. A low FOIR means that you have room in your budget for new debt payments, which makes it easier for lenders to approve your application.

What Are Fixed Obligations?

Fixed obligations are the bills that you have to pay every month, like your rent or mortgage payment. It also includes debt like home loans, car payments, and credit card bills.

Fixed obligations are the most important factors that lenders look at when deciding whether to approve or deny your loan application. If you have too many fixed expenses, it can mean that you won’t be able to afford other financial obligations, like making payments on any new debts you take out.

How FOIR is Calculated?

The fixed obligation to income ratio, or FOIR, is a measurement of your monthly expenses and income. It’s calculated by taking the total amount that you spend in a month and dividing it by your gross monthly income.

While this seems simple enough, certain factors can skew your FOIR calculation and make it difficult to determine if you’ll be approved or not. The first of which is the nature of your expenses, such as mortgage payments, car payments, and credit card bills.

Other fixed expenses like rent or utilities are all included in the calculation of FOIR. However, variable expenses like groceries and gas aren’t considered part of this calculation because they fluctuate with usage over time.

Another important factor to consider when considering whether or not you’ll qualify for a personal loan is how much money is currently being paid toward debt. If these types of payments are keeping you from having enough money left over after paying the minimums on all debts combined, then it’s unlikely that any lender will approve a new loan.

For example, if you make Rs. 50,000 per month and spend Rs. 40,000 on expenses like rent, groceries, and utilities (not including loan repayments), then your FOIR is 80%. This means that you don’t have enough money to cover all of your expenses and would likely be rejected for a loan if you applied now.

Factors Affecting FOIR

If you want to check whether or not you qualify for a personal loan based on this ratio, then some factors need to be taken into consideration:

  • The first factor in a personal loan is how many dependents you have. The more earning members of your family you have, the better your chances are of getting a loan.
  • The second factor is your current salary and other sources of income. All legitimate income can be combined to decrease FOIR and increase the loan amount.
  • The third factor is whether or not you have any past dues on any previous loans.
  • The fourth factor is whether or not there are any other liabilities on top of your current monthly expenses.
  • The fifth factor is whether or not you have any assets that can be used as collateral for the loan.
  • The sixth factor is your current employment status and how long it has been since you started working.
  • The seventh thing to think about is whether or not you have a steady income that can be used to pay for your monthly bills.

What are the ways to reduce your FOIR?

There are many ways in which you can reduce your fixed obligation to income ratio.

Use a co-applicant.

You can consider taking a co-applicant with you to reduce your fixed obligation-to-income ratio. You can also consider applying for a personal loan with someone who has a good credit score and can help you reduce the amount of interest that will be charged on your loan.

The co-applicant will be responsible for repaying the debt in case something happens to you.

Maintain a Low Credit Utilisation Ratio.

The best way to handle your credit is to keep your credit-to-debt ratio low. This means that you should only use about 30% of your available credit at any given time. If you have several cards, make sure that the total amount of money owed on all of them does not exceed this percentage.

Your credit utilisation ratio is the amount of debt you have compared to your available credit line. If you use all of your available credit on monthly bills such as rent or mortgage payments, car loans, and student loans, you may be considered a high-risk borrower.

Prompt Repayments

Another important component of a good credit score is prompt repayment. This means that you should pay your bills on time and in full each month. If you have several credit cards, make sure that the total amount of money owed on all of them does not exceed this percentage. You should make timely payments on your credit card bills.

If possible, try to set up automatic payments through your bank so that they are taken out of your account on the due date each month. This way, there is no chance of forgetting to make the payment.

Avoid Taking Out Several Loans

The best way to improve your credit score is to avoid taking out multiple loans at once. You will be given a credit score based on your history, and if you have recently taken out several loans, it will look like you are in financial trouble.


If you follow these tips, you should be able to reduce your FOIR. It will take some time and effort on your part, but it is well worth the investment. For any help during the process, don’t hesitate to get in touch with the experts at Piramal Finance.