FOIR (Fixed Obligation to Income Ratio): What It Is and How It Is Calculated

When you are looking to borrow money, whether it is for a house, a car, or personal use, one key factor that lenders consider is your Fixed Obligation to Income Ratio (FOIR). This ratio helps them figure out if you can handle more debt. In other words, FOIR measures how much of your monthly income is already being used to pay for existing loans and other fixed expenses. So, it is important for you to understand FOIR as it would help you get approved for loans and manage your money better. With this brief guide, let’s understand FOIR’s meaning, what is FOIR in loan, how FOIR is calculated, and more.

What is FOIR?

FOIR’s full form is Fixed Obligation to Income Ratio. As mentioned earlier in the introduction, it is a way for lenders to see how much of your monthly income is already committed to paying fixed monthly expenses. These expenses can include things like existing loan payments, rent, or other monthly bills. A lower FOIR means you have more income available to take on new loans, while a higher FOIR means you are already using a big part of your income for existing expenses.

How is FOIR calculated?

Here’s how you can calculate FOIR:

Step 1: List Your Fixed Monthly Obligations

Write down all the fixed payments you make each month. These include monthly loan payments (like home loans, car loans, and personal loans), monthly rent, and other payments like credit card dues.

Step 2: Check Your Monthly Income

Now, determine your total monthly income and this may include your salary or wages and any other regular income like rental income or income from a side business.

Step 3: Calculate FOIR

Use the formula – FOIR=(Total Fixed Monthly Obligations/Total Monthly Income)×100. So, for example, if your monthly income is ₹5,000 and your total fixed monthly obligations are ₹2,000, your FOIR would be: FOIR=(2000/5000)×100=40 This means 40% of your monthly income is used to pay your fixed obligations.

Why is FOIR Calculation Essential?

Here are a few significant reasons why FOIR is calculated:

Loan Approval

Lenders use FOIR to decide if they should approve your loan application. If you have a high FOIR, it means you have less income left to pay off new loans and this can make lenders hesitant to give you more credit.

Financial Health

Knowing your FOIR helps you understand your financial health. A lower FOIR means you have more money left after paying your monthly bills.

Debt Management

The more you understand your FOIR, the better you manage your debts.

Also Read: 5 Proven Strategies to Quickly Clear Your Debts

How does FOIR affect a Personal Loan approval?

When you apply for a personal loan, lenders look at your FOIR to see if you can handle more debt. A lower FOIR shows that you have enough income left after paying your existing obligations to take on new debt. Generally, lenders prefer a FOIR of less than 50%. If your FOIR is high, it means your loan application may get rejected.

Also Read: 6 Dos and Don’ts While Applying for an Instant Loan

Top Ways to reduce FOIR

Ways to reduce FOIR

Here are some ways to reduce your FOIR:

Increase Your Income:

Start a side business or freelance work to earn extra money. You can also look for investment options that provide regular income like dividends or rental income.

Pay Off Existing Debts

Use any extra money like bonuses or savings, to pay off part of your loans. Combine multiple debts into one loan with a lower interest rate and lower monthly payments. You should also pay off debts with higher interest rates first to reduce your overall obligations faster.

Refinance Loans

You can refinance your loans to secure lower interest rates, which would reduce your monthly payments. Another way is to increase the length of your loan to lower the monthly payments.

Avoid New Debts

Wait to take new loans until your FOIR is lower and more manageable. Use credit cards less often to avoid increasing your monthly expenses.

Also Read: How to Differentiate Between Good Debt And Bad Debt


By now, you must have understood what is FOIR in a loan and how you can calculate it. So, if you wish to maintain good financial health and increase your chances of getting loan approvals, you should be aware of your FOIR.

If you are looking for an instant personal loan, download the CASHe mobile app and follow the hassle-free application process to avail a loan. With CASHe, you can easily manage your finances and access personal loans as per your needs.

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CASHe Team Welcome to the CASHe blog, your trusted source for insightful articles on personal loans, credit lines, digital gold, finance, lifestyle, and more. Our team at CASHe is a dedicated group of writers, editors, and subject matter experts passionate about simplifying finance for our readers.


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