What Is FOIR and How It Affects Personal Loan?

Personal loans seem to be a complicated concept and many people struggle to understand the nitty gritty matters of this financial service. We have come across this term while applying for a personal loan but what exactly is FOIR? How is it calculated and how does it affect our personal loan eligibility? In this article, we will delve into these questions and more to provide a comprehensive understanding of FOIR and its significance in the world of personal loans. 

Understanding FOIR (Fixed Obligation to Income Ratio)

FOIR stands for Fixed Obligation to Income Ratio. It’s an important measuring parameter that lenders use to evaluate an individual’s ability to manage repayments of the loan they are applying for. Essentially, it is a tool utilised by banks to assess our financial health and repayment capability. Now before understand how DOIR affects our loan repayment criteria, we need to understand the calculation of FOIR> 

How is FOIR Calculated?

The formula for calculating FOIR is quite straightforward. It involves tallying up all our fixed monthly obligations, or debts, and dividing them by our total monthly income. This figure is then multiplied by 100 to give a percentage. There are several FOIR calculator online tools we can use to easily compute our FOIR.

Now that we know about how FOIR is calculated, let’s talk about Airtel Personal Loan. Here are some of the features of Airtel Personal Loan and why one should consider it:

• Airtel personal loan offers a starting rate of interest at 11.5%
• It has a flexible loan tenure ranging from 6 months to 60 months. 
• The whole process is 100% online, with a disbursal time of 24 hours, and a very low processing fee of 2-5%. 

Also Read: Top 7 Benefits of Personal Loan You Must Know 

Role of FOIR in Personal Loan Approval

When you apply for a loan, lenders take into account our FOIR to determine whether or not to approve our loan application. If our FOIR is high, it indicates that a large portion of our income is already dedicated to existing debt repayments. This can affect our ability to manage additional loan repayments, thus making lenders hesitant to approve your loan application. FOIR basically works as the CIBIL credit score and determinbes whether a bank will lend us the loan or not. 

FOIR: The Key to Loan Eligibility

FOIR plays a crucial role when it comes to personal loan eligibility. Most financial institutions prefer a FOIR of 50% or less. If our FOIR exceeds this percentage, it could affect our loan eligibility, even if we have a good credit score.

How Does High FOIR Affect Your Loan Application?

A high FOIR for personal loan indicates that a large portion of your income is already tied up in debt repayment. This can make lenders wary, as it suggests you may struggle to manage additional loan repayments. Consequently, having a high FOIR can result in our loan application being denied.

Ways to Improve Our FOIR for Better Loan Eligibility

Improving our FOIR for loan can enhance our chances of the approval. We can do this by reducing our existing debts, increasing our income or both. Another approach is to extend the tenure of our existing loans, which can reduce our monthly obligations and improve our FOIR.

FOIR vs. Other Loan Eligibility Factors

While FOIR is important, it’s not the only factor lenders consider when assessing loan eligibility. Our credit score and our monthly income/salary/earnings also play a huge role in making sure the lenders sanction the loan. 

Also Read: Minimum Salary Required to Get a Personal Loan 

The Impact of FOIR on EMI and Loan Repayment 

• Our FOIR can impact the EMI (Equated Monthly Instalment) we are are eligible for. A lower FOIR can result in a higher EMI, making it easier to repay the loan faster. Respectively, a high FOIR could lead to a lower EMI, extending the loan repayment period.

• If one is considering taking out multiple loans, it’s essential to keep an eye on the FOIR. The higher the FOIR, the less likely lenders will be to approve additional loans.

• Ignoring FOIR can have serious repercussions, such as loan application rejection and financial stress due to over-commitment to debt repayments. It’s therefore crucial to understand and manage our FOIR effectively.

Understanding and managing our FOIR can significantly impact our personal loan approval chances. So, whether one is considering a personal loan or multiple loans, keeping an close eye on our FOIR will ensure we are in the best position possible.