Personal Loan: Here's how your debt eligibility is calculated

By Vivek Dubey By Vivek Dubey CNBC-TV18.com CNBC-TV18.com Published Dec 02, 2023 Published Dec 02, 2023

Loan Explained

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FOIR Basics

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FOIR Significance

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Lender’s View

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Calculating FOIR

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Income Check

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Debt Check

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FOIR Formula

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For example, if one's total monthly obligations (include present loans, credit card payments, etc.) amount to ₹30,000 and their monthly income is ₹1 lakh, then your FOIR would be: FOIR = (30,000/1,00,000)*100= 30

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FOIR Decoded

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Balanced FOIR

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High FOIR

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Improving FOIR

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Personal Loan: Here's how your debt eligibility is calculated

Loan Explained

Personal loans are lump sums provided by financial institutions for any purpose, based on factors like employment history, income, and credit history.

FOIR Basics

The financial obligation-to-income ratio (FOIR) is vital for securing a personal loan. It’s a key metric for lenders.

FOIR Significance

FOIR is the portion of a borrower’s monthly income for existing financial commitments. It’s a key factor in loan approval.

Lender’s View

FOIR allows lenders to assess a borrower’s financial capacity and their ability to take on more debt.

Calculating FOIR

FOIR calculation involves tallying your existing financial commitments and monthly income.

Income Check

Begin by calculating your monthly income, including salary, rental income, business profits, and other sources.

Debt Check

Gather your current financial commitment. This includes payments towards existing loans, credit card bills, rent, and other obligations.

FOIR Formula

FOIR is calculated using this formula: FOIR = (total monthly obligations/monthly income)*100. It provides a snapshot of your financial health.

For example, if one's total monthly obligations (include present loans, credit card payments, etc.) amount to ₹30,000 and their monthly income is ₹1 lakh, then your FOIR would be: FOIR = (30,000/1,00,000)*100= 30

FOIR Decoded

A low FOIR (Less than 30%) indicates a healthy financial situation, suggesting enough disposable income for additional debt.

Balanced FOIR

A moderate FOIR (30-50%) indicates a balance between income and obligations. It’s a comfortable range for lenders.

High FOIR

A high FOIR (Above 50%) might concern lenders, as it shows most of your income is committed to existing obligations.

Improving FOIR

If your FOIR is high, strategies to improve it include reducing existing debt, increasing income, and cutting unnecessary expenses.

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