When borrowers apply for a loan, most focus only on income and credit score. However, from a banker’s perspective, loan approval depends equally on repayment capacity, not just willingness to pay. One of the most critical tools banks use to assess this capacity is FOIR – Fixed Obligations to Income Ratio.
FOIR plays a decisive role in determining loan eligibility, sanctioned loan amount, EMI structure, and sometimes even rejection—especially for salaried and self-employed borrowers.
This article explains what FOIR is, how banks calculate it, acceptable FOIR limits in India, and how borrowers can improve eligibility by managing FOIR wisely
Table of Contents
What Is FOIR?
FOIR stands for Fixed Obligations to Income Ratio.
It represents the percentage of a borrower’s monthly income that is already committed towards fixed financial obligations
In simple terms, FOIR answers one key banking question: FOIR stands for Fixed Obligations to Income Ratio.
It represents the percentage of a borrower’s monthly income that is already committed towards fixed financial obligations.
In simple terms, FOIR answers one key banking question:
After paying all existing EMIs and fixed commitments, how much income is left to service a new loan? FOIR is expressed as a percentage and is calculated before loan sanction, not after
FOIR Formula Used by Banks
FOIR (%) = (Total Monthly Fixed Obligations ÷ Monthly Gross Income) × 100
Fixed Obligations Include:
- Existing loan EMIs (home loan, personal loan, car loan, education loan)
- Credit card minimum dues
- Buy Now Pay Later (BNPL) obligations
- Overdraft interest servicing (if regular)
- Sometimes rent (depending on bank policy)
Fixed Obligations Do NOT Include:
- Grocery expenses
- Utility bills
- Insurance premiums (unless EMI-based)
- Lifestyle expenses (travel, dining, subscriptions)
Banks assume borrowers will manage daily expenses from the remaining disposable income.
Calculate your FOIR
FOIR Calculator
How Banks Actually Use FOIR
From a bank’s credit appraisal desk, FOIR is used to control default risk, not to inconvenience borrowers. Banks internally classify FOIR into risk buckets, broadly as follows:-
Low FOIR (Below 30–35%)
- Considered very safe
- High approval probability
- Better interest rates
- Higher loan eligibility
2. Moderate FOIR (35–50%)
- Acceptable but monitored
- Loan amount may be reduced
- Tenure may be extended to control EMI
3. High FOIR (Above 50–55%)
- Risky category
- Often leads to partial approval or rejection
- Higher scrutiny on income stability
4. Very High FOIR (Above 60%)
- Usually rejected
- Indicates over-leveraging
- Bank policy typically does not permit further exposure
Some banks or NBFCs may allow higher FOIR through internal deviations, but these cases are exceptions, not norms
FOIR Explained with a Practical Example
Consider Mr. Sharma, a salaried professional:
- Gross Monthly Income: ₹1,00,000
- Existing Home Loan EMI: ₹25,000
- Car Loan EMI: ₹10,000
- Credit Card Minimum Due: ₹5,000
Total Fixed Obligations = ₹40,000
FOIR = (40,000 ÷ 100,000) × 100 = 40%
From a banker’s perspective:
- Mr. Sharma is in a moderate FOIR zone
- He may get a new loan, but not at maximum eligibility
- Bank may reduce loan amount or increase tenure
FOIR vs Credit Score: Which Is More Important?
Both are important, but they serve different purposes:
| Parameter | Purpose |
| Credit Score | Measures past repayment behaviour |
| FOIR | Measures current repayment capacity |
A borrower with:
- High credit score but high FOIR → may still face rejection
- Average credit score but low FOIR → may still get approval
Banks always assess ability to pay before willingness to pay .
👉 To understand how both are used together, read How Banks Decide Loan Eligibility in India
FOIR Limits for Different Loan Types
Home Loans
- Acceptable FOIR: Up to 50–55%
- Reason: Long tenure, secured nature
Car / Vehicle Loans
- Acceptable FOIR: Up to 45–50%
Personal Loans
- Acceptable FOIR: 40–45%
- Higher risk due to unsecured nature
Credit Cards
- FOIR is evaluated indirectly
- High FOIR often results in lower credit limits
NBFCs may allow slightly higher FOIR, but at higher interest rates
How FOIR Impacts Loan Amount and EMI
FOIR directly influences:
- Maximum EMI bank will allow
- Loan amount sanctioned
- Tenure offered
If FOIR is high, banks may:
- Reduce loan amount
- Increase tenure to lower EMI
- Ask for co-applicant
- Reject application altogether
This explains why borrowers with high income sometimes receive lower-than-expected sanctions.👉 To understand EMI impact better, refer to EMI Calculator – Calculate Loan EMI
Common Mistakes Borrowers Make Regarding FOIR
- Ignoring credit card minimum dues
- Taking multiple small consumer loans
- Assuming high income guarantees approval
- Applying for loans without checking existing obligations
- Adding EMI-based insurance unknowingly
From a banker’s view, multiple small EMIs are more risky than one structured loan.
How to Improve FOIR Before Applying for a Loan
If your FOIR is high, corrective steps can significantly improve eligibility:
1. Close Small Loans
Personal loans or BNPL products increase confirms FOIR disproportionately.
2. Reduce Credit Card Usage
Pay full dues instead of minimum payments.
3. Avoid New Credit Before Loan Application
Multiple recent loans worsen FOIR temporarily.
4. Add a Co-Applicant
Combined income improves FOIR calculation.
5. Increase Tenure (Strategically) Longer tenure lowers EMI but increases total interest
Summary
FOIR is not a hidden rule—it is a core risk assessment tool used by every bank and NBFC in India. Understanding FOIR helps borrowers plan better, avoid rejection, and negotiate smarter loan terms.
Before applying for any loan, calculate your FOIR honestly. A controlled FOIR not only improves approval chances but also ensures long-term financial stability. At IndianFinanceHub, our goal is to help borrowers understand banking decisions the way banks do—clearly, practically, and responsibly