What is EMI to Salary Ratio (FOIR)?
The EMI to Salary Ratio, also known as FOIR (Fixed Obligations to Income Ratio), is a critical metric used by banks and financial institutions to assess your loan eligibility. It represents the percentage of your monthly income that goes towards fixed debt obligations like EMIs.
This ratio helps lenders understand how much of your income is already committed to debt repayment, and whether you can afford additional loan obligations without financial strain.
FOIR Limits by Banks
- Safe Zone (0-30%): Excellent loan eligibility, comfortable repayment capacity
- Moderate (30-40%): Good eligibility, but limited buffer for emergencies
- Risky (40-50%): Banks may approve with conditions, higher interest rates
- Danger Zone (50%+): High rejection probability, financial stress likely
How is FOIR Calculated?
The formula is straightforward:
FOIR = (Total Monthly EMIs / Net Monthly Income) x 100
For example, if your monthly income is ₹1,00,000 and total EMIs are ₹35,000, your FOIR is 35%.
Why Does FOIR Matter?
- Loan Approval: Banks check FOIR before approving any loan application
- Interest Rates: Lower FOIR may qualify you for better interest rates
- Financial Health: Keeping FOIR low ensures you have savings capacity
- Emergency Buffer: Low FOIR means more disposable income for emergencies
Tips to Improve Your FOIR
- Prepay existing loans: Use bonuses to reduce outstanding EMIs
- Extend loan tenure: Lower EMI with longer repayment period
- Consolidate loans: Combine multiple loans into one lower-interest loan
- Increase income: Add co-applicant income to improve eligibility
- Close credit cards: Pay off revolving credit before applying for loans
Frequently Asked Questions
What is a healthy EMI to salary ratio?
Financial experts recommend keeping total EMIs below 30% of net monthly income for comfortable living. Banks typically allow up to 40-50%, but this leaves little margin for unexpected expenses.
What is the difference between FOIR and DTI?
FOIR (Fixed Obligations to Income Ratio) is the Indian banking term for debt-to-income ratio (DTI). Both measure the percentage of income going towards debt repayment.
Can I get a loan with 50% FOIR?
While some banks may approve loans at 50% FOIR, it is risky. You will likely face higher interest rates and have minimal savings capacity.
How do banks calculate net monthly income?
Banks consider your take-home salary after tax deductions for salaried individuals. For self-employed, they typically consider 50-70% of gross income.
Does credit card outstanding affect FOIR?
Yes, banks consider 5% of your total credit card limit as a notional EMI while calculating FOIR, even if you pay in full each month.