Personal Loan

What is FOIR and How is It Calculated On a Personal Loan?


A personal loan is one of the most common loans applied by people. It is an unsecured loan with quick disbursal. The documentation needs are quite basic. 

The eligibility for a personal loan is simple. It is based on your age, income, and credit score. But there is one thing known as  FOIR, which is also considered. 

Understanding FOIR and the right way to calculate it is important. This guide will share with you complete insights on the same.

Understanding FOIR

FOIR is a fixed obligation-to-income ratio. It is a parameter which is used to check loan eligibility. It determines the creditworthiness of the applicant. In simple terms, it is the debt-to-income ratio. This ratio is always represented in percentages.

This display the percentage of the debt you have against your income. It is a true reflection of your credit health and repayment eligibility. It shows your actual repayment capacity at the income you are earning. 

Mathematically, it is:

FOIR = (Sum of all monthly debts/ Net income per month) * 100

For simple understanding, here are the details of each term:

Debts are the total of EMIs and other credit bills you must pay. It includes EMI for personal loans, home loans, business loans, education loans, and others.

Net income is the total amount you earn from all sources. You can also have multiple sources of income. You just need to back up them with evidence.

Every lender has their own accepted FOIR range. But in general, it should be between 40% to 55%.

To understand the FOIR calculator, let us take an example:

Example of FOIR calculation

Suppose you earn a monthly salary of INR 90,000. The following are the EMIs he needs to pay:

Home loan = INR 25,000 PM

Auto loan = INR 15,000 PM

Mortgage loan = INR 20,000 PM

Credit card instalment = INR 8,000 PM

The total amount you need to pay per month is INR 68,000. 

Now, the FOIR is = (68,000/90,000)*100 = 75.56%.

The ratio can be explained as follows:

75.56% of your income goes into debt.

Your surplus is only 24.44% to pay any new debt.

Now, this is out of range which will reject the loan application.

Significance of Low and High FOIR

A low FOIR signifies:

  • You have fewer liabilities.
  • Your disposable income is high.
  • The chances of repaying the debt are high.
  • The chances of loan approval are high.

A high FOIR signifies:

  • You have more debts.
  • You do not have a high disposable income.
  • There are chances of delayed payment or non-repayment of debt.
  • The chances of loan rejection are high.

Tips to improve your FOIR

Improving FOIR is the best way to get approval for your loans. These tips can help you:

Go for a joint loan

If you have a high need for a loan, try a joint loan. The co-applicant be your spouse or a blood relative. This will reduce the burden of EMI on you. Also, this will improve your FOIR and improve your chances of loan approval. 

Repay your debts

You need to repay your debts on time for a healthy credit score. It will help to improve your credit score and FOIR. As you repay debt, the amount for EMI will reduce over time. Also, this will allow you to get a new loan if needed.

Improve credit utilisation ratio

It is the ratio of the credit used against the credit available. It is suggested to keep it well below 30%. If your credit utilisation ratio is above 30%, consider paying off some debts. This will increase your disposable income with you. Also, it will improve your FOIR.

Avoid multiple loans

You should avoid multiple loans. Lenders prefer borrowers who can manage their finances well. Too many loans in your profile can lead to the rejection of your application.

Avoid frequent job switches

Frequent job switches are also a cause of high FOIR and so can lead to application rejection. You will not have a consistent income due to gaps in between. This will further worsen your disposable income.

Increase in loan tenure

You can increase the loan tenure for existing loans. In that case, it will reduce your EMIs and increase your disposable income. This will give you a chance to get your loan application approved. 

Include additional income, if any

You should disclose all the sources of income you have. Ensure you have proof of income to support. Additional income will raise your total income and reduce FOIR.

Why is FOIR so important for a personal loan?

A personal loan is an unsecured loan. There is no collateral associated with it. When you apply, the lender needs to ensure you have a sufficient amount to pay off the debt. Calculating FOIR will ensure the lender that you have enough surplus to pay off the EMI. This is a sign that your application will be approved.

A FOIR is important for both the lender and the borrower. It gives a lender an idea of the credit health of the borrower. On the contrary, it offers the borrower an idea of his monthly expenses. 

A high FOIR can increase the interest rate, while a low FOIR might attract a lower interest rate. The lender might assess your assets and prefer a secured loan against a personal loan. This will ensure them of the repayment.

Reason to consider a personal loan

You can use a personal loan for multiple purposes.

The application for a personal loan is simple.

It is unsecured.

The eligibility criteria are straightforward.

The documentation needs are quite straightforward.

You can apply a personal loan for online. You can visit the lender’s website. Fill in the form and apply.

There is no need for any collateral.

The processing fees and interest rates are better.


Multiple factors impact a personal loan. Analysing each factor ensures the lender of your credibility. FOIR is one of them. It allows a lender to check the surplus income you have. This will define your actual debt against your total income.

A low FOIR is a sign of better credit management. This will increase the chances of approval of your loan. But if you have a high FOIR, your application might be rejected. You must follow the right financial management to reduce your FOIR.

You might have some fixed obligations, but you can manage FOIR by managing your credit utilisation ratio. You can visit Piramal Finance to apply for a personal loan and get information about FOIR. The process of application is quite simple and online. Also, you can easily meet all your financial needs with the amount.