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  • Fixed Obligations to Income Ratio (FOIR) is Rated as "Great!" by 94195 Users

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    Fixed Obligations to Income Ratio (FOIR)

    All financial institutions including banks have an array of very stringent eligibility criteria before sanctioning a loan. When a person is applying for a personal loan or any other loan facility, he or she has to go through a rigorous amount of multifaceted checks before the loan is finally disbursed. This is due to the fact that the possibility of repayment of a loan is an important measure that determines whether an individual is eligible for the loan or not. If this parameter is not validated, there are chances that the bank might incur losses due to non-repayment of the loan offered to a candidate attributing to non-performing assets or bad debts. In order to avoid such conundrum, financial organisations perform through background checks on the applicant including his or her income documents, credit repayment history, assets, financial liabilities, and other components that can affect the loan repayment ability of the individual.

    There are 3 deciding factors or ratios that the banks calculate using the net income of a person to determine his or her eligibility for a loan:

    1. Fixed obligation to income ratio (FOIR)
    2. Loan-to-value ratio (LTV)
    3. Instalment income ratio (IIR)

    What Are the Parameters For Loan Approval?

    While there are multiple parameters that are taken into account by a bank before approving a personal loan and various banks have different set of eligibility criteria, the most crucial one is the loan repayment ability of an individual. In order to ensure that the loan paid back, the bank carefully considers the following parameters of an applicant:

    • The age of the candidate at the time of loan application
    • The qualification of the applicant
    • The individual’s fixed and variable income
    • The work experience of the individual to ensure a regular source of income
    • Reputation of the organisation at which the applicant currently works at
    • Tax payment history
    • Outstanding loans of the applicant
    • Financial assets and liabilities
    • Loan repayment tenure
    • The applicant’s CIBIL score

    What is Fixed Obligations to Income Ratio?

    Fixed Obligations to Income Ratio (FOIR) is the parameter used by banks and other financial organisations to determine the eligibility for a loan of an individual. The FOIR of a person is derived by taking into account all the fixed monthly obligations that he or she should meet without including the statutory deductions such as Provident Fund, Investment Deductions, or Professional Tax. While additional expenses such as rent can also be considered as fixed obligation depending on the level of income, the FOIR reflects the disposable income of a candidate that can be used to pay off his or her debts - existing and new. Therefore, the loan eligibility of an individual highly depends on his or her FOIR.

    The formula for calculating the FOIR of a person is given below:

    FOIR = (Summation of All Existing Obligations/Net Monthly Salary) * 100

    Calculation of Personal Loan Eligibility With FOIR

    If the Fixed Obligations to Income Ratio of an individual is 50%, it means that a maximum of 50% of the monthly income of the person is assumed to be his or her living expenditure before the bank disburses a personal loan, home loan, car loan, etc. Therefore, the remaining amount of the income will be considered by the bank in order to determine the loan amount that the individual should be eligible for.

    This can be explained further with the following example:

    A person has a monthly income of Rs.50,000. Considering 50% as fixed obligations, the individual can pay up to Rs.25,000 towards his or her debts. If he or she has 2 existing loans with EMIs of Rs. 5,000 and Rs.6,000 respectively, the candidate is currently paying a total EMI of Rs.11,000. Therefore, the disposable income for the person is Rs.14,000. If this individual applies for a personal loan, he or she will be able to avail a maximum loan amount subject to the remaining monthly disposable amount, i.e. Rs.14,000.

    A candidate with low FOIR is desirable while applying for a personal or any other type of loan. This is due to the fact that when a person has a high Fixed Obligations to Income Ratio, he or she has less amount of funds left as disposable income after paying the existing EMIs. If this person is disbursed another loan, there are high chances that he or she will not be able to pay the EMI for repayment of the new loan. Thus, this will lead to high credit risk and the chances of banks denying a loan application will also be higher.

    Do All Banks Have a Standard FOIR?

    While the margin for Fixed Obligations to Income Ratio differs from lender to lender and varies in each scenario, the required FOIR of an individual for loan eligibility for most of the banks ranges from 40% to 60%. However, this can go up to 65% to 70% for a customer with an extremely high net worth.

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    What Should I Do If My FOIR is High?

    If you are worried about your loan approval since your Fixed Obligations to Income Ratio is higher than the concerned bank’s margin then you can apply for a loan with another working candidate. In that scenario, the burden of the payment of EMI will be divided. For instance, a married working couple can easily share the monthly payments, thus, will have better chances of loan approval if they opt to avail a loan jointly.

    Personal Loan Reviews

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      "Satisfactory"
      0.5 4.0/5 "Great!"
      I have taken my personal loan was taken with HDFC Bank 2.5 years back. The loan amount was 1 lakh.The interest rate was quite satisfactory and the tenure period was 2 years .I am happy with the service and responses . There is no inconvenience faced and the pre closure is after 2 years .
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      , new delhi
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    • HDFC Bank Personal Loan
      "Satisfactory"
      0.5 4.0/5 "Great!"
      I have taken a personal loan with HDFC Bank and the process of documentation process was very good. I got the loan on time and the rate of interest and processing charges is nominal and in all there are no issues to get the loan. A smooth process in all.
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      , hyderabad
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    • ICICI Bank Personal Loan
      "Satisfactory"
      0.5 4.0/5 "Great!"
      My personal loan was taken with ICICI bank 1 year back. I have taken 2.8 lakhs and the interest rate was very high . The tenure period was 4 years but i did pre closure . The chargers re very high for pre closuring the loan here but i had a smooth loan process . The documentation was quite smooth and hassle free.
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      , bangalore
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    • HDFC Bank Personal Loan
      "Very good"
      0.5 4.5/5 "Excellent!"
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      , bangalore
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    • ICICI Bank Personal Loan
      "Process is nice"
      0.5 5.0/5 "Blown Away!"
      ICICI Bank has also offered me a personal loan. The customer services and response is good and there are no hassles in the process. They also offered me a good rate of interest and the processing charges are nominal too. The after loan services are good too.
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    • Capital First Personal Loan
      "Hassle free process"
      0.5 4.0/5 "Great!"
      I have taken a personal loan with Capital first. The customer services and response is good. The process to get the loan is good and the rate of interest and processing charges is normal too. The after loan services are also satisfactory. Good overall.
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      , greater noida
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    • HDFC Bank Personal Loan
      "Very good"
      0.5 5.0/5 "Blown Away!"
      My personal loan was taken with HDFC bank 1 year back. I have taken 2.5 lakhs and the interest rate was satisfactory . I am happy with the customer service and responses. There is no inconvenience faced and the process was completely hassle free.
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      , chennai
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    • Citibank Personal Loan
      "Satisfactory"
      0.5 3.5/5 "Pretty good"
      My personal loan was taken with CITI bank 4 months back. The loan amount was 1,20,000 and the interest rate was very high . The customer service and responses was good. I have faced some difficult and they even detected some amount also. The processing fee was nominal.
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      , hyderabad
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    • ICICI Bank Personal Loan
      "Very bad experience and still sufferring"
      0.5 0.5/5 "Unacceptable"
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    • HDFC Bank Personal Loan
      "good service"
      0.5 5.0/5 "Blown Away!"
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      , hyderabad
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    • Bank Bazaar Personal Loan
      "Normal Service"
      0.5 4.0/5 "Great!"
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      , faridabad
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    • Cashe Personal Loan
      "Awesome Service"
      0.5 5.0/5 "Blown Away!"
      I have taken a short term loan from the CashE. It was awesome, I got the loan on the same day with in hours. It was a very good experience and they processed the application very quick. It is a very good service for emergency financial aid.
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      , faridabad
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    • HDFC Bank Personal Loan
      "good service"
      0.5 5.0/5 "Blown Away!"
      My jumbo loan was taken with HDFC BANK , their tenure period is 4year . The best part is processing fee is free with this bank and rate of interest is 1.3% which is nominal in the market . There is option preclosere with 3% on principal amount . Overall it is good to have HDFC BANK.
      Was this review helpful? 1
      , pune
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    • Aditya Birla Finance Personal Loan
      "Very Bad Experience with ABFL"
      0.5 0.5/5 "Unacceptable"
      1. Fake commitment of 30 min. disb. 2. Irritate by sending lots of sms and emails of remainder. 3. Breaks privacy by sending bank details in sms and email. 4. No reply from customer care email. 5. After regular payment we will get an overdue emi sms.
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      , pune
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    • SBI Personal Loan
      "Good service"
      0.5 4.0/5 "Great!"
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      , secunderabad
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    • HDFC Bank Personal Loan
      "Good service"
      0.5 4.0/5 "Great!"
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      , hyderabad
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    • HDFC Bank Personal Loan
      "Excellent Service"
      0.5 5.0/5 "Blown Away!"
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      , chennai
      Reviewed on Sep 19, 2018
    • Bank Bazaar Personal Loan
      "Excellent Service"
      0.5 5.0/5 "Blown Away!"
      It has been a very good experience i had with Bank Bazaar and i had been using it for checking about the credit scores and the interest rate as well. I had been using the website of them and it has been easy in using it. Their customer support also had been responsive where there has been good follow up during the process of my personal loan.
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      , chennai
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    • ICICI Bank Personal Loan
      "Very Good Service"
      0.5 5.0/5 "Blown Away!"
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      Was this review helpful? 1
      , chennai
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    • Kotak Personal Loan
      "Good service"
      0.5 3.0/5 "Satisfactory"
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      Was this review helpful? 1
      , hyderabad
      Reviewed on Sep 19, 2018
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