As per RBI reports, the number of NPAs for financial institutions is expected to rise by 13.5 by September 2021, which will result in financial institutions making their eligibility criteria stricter. In order to avail loans in these situations, borrowers will need to improve their loan eligibility and maintain a low FOIR or Fixed Income Obligation Ratio.
What IS FOIR?
FOIR or Fixed Income Obligation Ratio refers to the part of the income that goes towards paying fixed monthly liabilities like utilities, rent, EMIs, etc., and gives an idea about the disposable income of the borrower to the financial institution. An ideal FOIR between 40-50% is required by most borrowers.
How to Calculate FOIR
FOIR is calculated by calculating (net monthly liabilities/net monthly income) *100
Monthly liabilities in FOIR also include EMI on the current loan you wish to take + other monthly liabilities discussed above. So, let’s assume your monthly liabilities is 35,000 and your net monthly income is 75,000, your FOIR will be:
FOIR = (35,000/75,000) X 100 = 46.66%.
In this case your loan application will be approved by the lender.
How Does FOIR Affect Loan Application?
A higher FOIR of more than 50% will get your loan application rejected whereas a lower FOIR indicate substantial disposable income, fewer obligations, higher repayment capacity, and higher chances of timely repayment.
Tips to Lower FOIR
You can lower your FOIR by clearing existing debts you are paying; in cases you can take a debt consolidation loan from a financial institution like Bajaj Finserv who offer this loan at attractive rates of interest with a flexible repayment tenure.
Now that you know how to calculate FOIR for a personal loan, you can plan your finances better and increase your chances of getting your loan application approved.