"Confused about FOIR? Understand the full form of FOIR, its meaning in banking, how to calculate it, and why it matters for your loan approval. Understand monthly and total obligations with simple examples and tips."
Published: 7 April 2025
Updated: 8 April 2025
Are you planning to take a personal loan, a home loan, or even a business loan for your startup? If yes, knowing the importance of FOIR in assessing your creditworthiness is an essential step. The full form of FOIR is Fixed Obligation to Income Ratio. It helps assess your repayment capability by calculating your monthly obligations along with your regular income. It's also known as the debt-to-income ratio. For easy documentation and fast loan disbursal, My Mudra is always your best financial partner.
In this blog, we’ll discuss why FOIR is an important factor in any finance or business decision, how it is calculated and some ways to improve your FOIR for easy loan approvals.
FOIR is a key factor used by lenders to assess the repayment capacity of a borrower by taking into account their monthly income and other monthly expenditures such as rent, dividends, taxes, loans, etc. Learning how to calculate FOIR is key to gaining financial knowledge.
FOIR Calculation Formula:
FOIR = (Total Monthly Fixed Obligations / Gross Monthly Income) × 100
Here’s a quick step-by-step guide for FOIR calculation with an example to help you plan your finances accordingly:
List down all the monthly expenditures that are fixed and constant in your life. This can include things like house rent, EMIs, insurance premiums, etc. Add the monthly amount of each expense and calculate your total obligation, meaning all the payments that are made every single month.
Just like listing all the expenses, add your monthly revenue, which is constant. This list can include any rental income, salary, business profits, etc. This will give you your monthly income total.
Once you have both the totals, apply them in the FOIR formula mentioned above and get your result. For instance, if your total monthly obligations are 1 lakh and your monthly income is 2 lakh, then your FOIR would be:
FOIR = (1,00,000 / 2,00,000) x 100
FOIR = 50 %
In this case, 50% of your monthly income goes towards fixed obligations, which may affect your chances of getting a loan approved.
FOIR full form is fixed obligations to income ratio, and it is one of the most important tools in finance and banking. From risk assessment to evaluating borrowers’ creditworthiness, FOIR calculation is a key tool in banking and finance:
When verifying a borrower's loan application, banks or NBFCs pay close attention to their debt-to-income ratio to judge the financial capabilities of the borrower.
The higher the FOIR, the higher the risk for the lender. This means that if you have a high FOIR, then lenders will hesitate as there is a higher chance of no repayment of the loan, causing loss to the bank or financial institution.
Calculating FOIR will give you a good picture of your financial situation. If it’s too high, it's time to slow down on spending and try saving to improve your situation. It also prevents people with high monetary obligations from over-borrowing without any reliable stream of extra income.
While high FOIR can seem a bit daunting, with some smart financial habits and tips, you can bring it down in no time. These strategies will also ease your loan approval process:
Before opting for a fresh new loan from the bank, it is advisable to repay your existing loans with timely payments. This will also help you boost your credit score for future loan applications. If you want faster repayment, check for a part-payment or foreclosure option for your loan.
Co-sign with someone who has a lower FOIR ratio to boost your eligibility. However, it is crucial to choose financing partners like My Mudra that are reliable and help leverage the key perks of co-applicant benefits, such as lower interest rates, flexible terms and larger loan amounts.
Opt for refinancing loans or shifting to a cheaper apartment to help reduce the overall monthly expenses. This will bring your FOIR ratio down and improve your loan approval chances. If it's tough to cut down, wait for a while and repay some smaller loans to improve your score.
If you can’t reduce your monthly obligations quickly, boosting your monthly earnings is a great way to build your overall financial health. Other than salary, you can also opt for income options such as rental earnings and dividends. Changing jobs regularly after a short period can also damage the trust of your lender.
Apply for a lower interest rate and minimal documentation loans with My Mudra to enjoy faster processing and reduced debt burden. With My Mudra’s connection with many reputable banks like HDFC and Axis, you can compare and find the perfect option for your financial needs.
If you are someone with a higher FOIR, getting a loan can be a bit difficult. However, with a good banking history and a well-built relationship with the bank or manager, you can help increase the trust among the lender. To ensure a chance at approval, keep your documents ready and fulfill all the eligibility requirements beforehand.
FOIR, full form in banking, is Fixed Obligations to Income Ratio, and it is one of the most powerful financing tools that can assess your financial situation perfectly. This not only helps you avoid borrowing but also offers a risk-free assessment for lenders. However, if you want some attractive interest rates, minimal documentation, and fast disbursal loan options, there is nothing better than My Mudra. Be it a fast-approval personal loan, a secured home loan, or a large business loan, we have it all. Ready to secure your loan? Apply now with My Mudra in just a few clicks!
Also read: Which Bank is Best for Personal Loan with Low Interest 2025
Ans: A FOIR below 30% is an ideal ratio. It showcases that you are in good financial health, with more income generated monthly than your expenditure. A higher FOIR such as 50-60% will not only allow you to have minimal loan options but also come with high interest rates and rigid terms.
Ans: Most banks use FOIR calculations for every popular loan type, such as instant personal loans, home loans, and online business loans. FOIR meaning in banking provides a clear picture of the financial stability of the borrower. This also helps lenders prevent defaults by offering loans to candidates with a higher ratio.
Ans: Monthly obligation, meaning in the FOIR calculator online, is the amount of money that you have to pay every month. These are usually fixed amounts such as EMIs, rents, insurance premiums, etc.
Ans: LTV refers to the ratio of the acquired loan amount from the lender to the value of the asset you are looking to purchase, such as a car or a home. FOIR is the ratio of your monthly liabilities to your total monthly earnings. It focuses on the repayment capability of a borrower.
Ans: Yes, FOIR, full form in finance, is fixed obligations to income ratio, and it can be a great tool for everyday budgeting, even if you are not applying for a loan. It helps you calculate your financial standing. For instance, if your ratio is 70 %, you should start focusing on either increasing your income or reducing your monthly liabilities and expenses.
Ans: FOIR and DTI ratios are quite similar to each other, as they both help calculate the ratio of a borrower's financial capability. However, the debt-to-income ratio takes into account only other loans or debt payments, while FOIR calculates the total monthly obligations, such as rent and insurance premiums, against their total income.
