The Reserve Bank of India has issued a notice that suggests by the end of September 2021 the total NPA will grow to 13.5% of all credit. Needless to say, India’s financial institutions will become more cautious in terms of lending. 

It also implies that the borrowers now have to go through stringent eligibility criteria before applying for any credit, especially unsecured ones like a personal loan. Of the several eligibility parameters that borrowers need to fulfil, FOIR plays a crucial role. Thus, it’s imperative for prospective borrowers to learn about what is FOIR to improve their eligibility. 

What is FOIR?

Fixed Obligations to Income Ratio or FOIR is a vital parameter that financial institutions consider while calculating a borrower’s loan eligibility. It calculates the monthly income of a borrower that goes into payment of current fixed obligations like EMIs, debt obligations, etc. Lenders also add the EMI component of the applied personal loan in the fixed obligation section. 

FOIR calculation gives a clear idea about a borrower’s disposable income and his/her repayment capacity. Most lenders ask for a FOIR of 40% to 50% before sanctioning the loan application. 

However, only knowing what is FOIR won’t suffice; individuals also need to understand how they can calculate their FOIR. 

How to calculate FOIR? 

First, individuals have to note down the following details:

  • Credit card bill
  • The amount that goes towards EMI payment
  • Rent payments
  • Lifestyle expenses
  • Other debt obligations 

Then, they have to use the following formula –

FOIR = (Total of all monthly obligations/net monthly salary) * 100

For instance, an individual draws a monthly salary of Rs.70000. His/her monthly fixed obligation is Rs.32000. In that case, his/her FOIR will be = (32000/70000) * 100 = 45.71%.

Calculating FOIR also aids individuals to plan their personal loan repayment better. For further convenience, they can use an online personal loan EMI calculator to get an idea of the EMI payable beforehand. 

It can help prospective borrowers to apply for a Bajaj Finserv personal loan with a higher chance of approval. One can avail a personal loan of up to Rs.25 lakh with easy repayment facility. 

This NBFC also extends pre-approved offers that expedite loan processing. Such offers are available on various financial products like personal loans, credit cards, and business loans. You can check your pre-approved offer simply by entering your name and mobile number. 

However, they should also know how FOIR impacts the eligibility for a personal loan in general. 

FOIR impact on a personal loan 

Since a personal loan is an unsecured credit, lenders only offer the funds after conducting a risk assessment and checking the borrowers’ credit profile. In that regard, FOIR plays a crucial role. Financial experts advise keeping it within 50%. It means that the total monthly obligations, including the EMIs of prospective loans, should not exceed 50% of an individual’s net monthly salary. 

By keeping a low FOIR, individuals can be benefited in the following ways: 

  • Reduces the burden of total liabilities 
  • Increases the disposable income
  • Improves repayment capabilities

In case one has a FOIR of more than 50%, they can improve it in the following ways: 

  • Paying off existing debts
  • Apply for a joint loan with a cosigner having a low FOIR. 
  • Comply with other eligibility factors that lenders layout 
  • Mention all sources of income.  

Alongside knowing about what is FOIR, individuals should also know how to keep it under 50% with an efficient repayment strategy. This practise will help them to take out personal loans at competitive interest rates.  

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