Money Clarity

How much of your income can safely go to debt?

There is a number lenders compute about you before they look at your credit score, and they never show it to you. It decides whether you are approved, for how much, and why a clean repayment history sometimes still gets declined. It is called FOIR, you can compute it in two minutes, and the way to bring it down is not the way most people assume.

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Last reviewed 2026-09-22

What FOIR is, and why it outranks your credit score

The technique

Fixed obligations divided by monthly income

Indian lenders size a loan from this ratio, typically capping it between 40 and 55 percent depending on income band and profile. It is applied before the credit bureau report is read closely, because a score describes how you have behaved and FOIR describes what you can physically afford. A borrower with a 780 score and no room is still declined.

Add every fixed monthly obligation - home loan EMI, personal loan EMI, car and two-wheeler EMIs, consumer durable instalments, credit card minimums, any guarantee you have given on someone else's loan. Divide by your monthly income as a lender counts it: net salary, plus annual bonus and other verifiable income divided by twelve.

That is your FOIR. Most people are surprised by it, because card minimums and small durable-loan instalments are the ones nobody includes when estimating from memory.

Card minimums count at roughly 5 percent of the outstanding balance, not at zero, even if you intend to pay in full
A loan you have guaranteed for a family member counts against you, whether or not you are paying it
Rent usually does not count as an obligation, but it does not help you either
Income counted is what is documented. Cash income, however real, does not enter the calculation

What each band actually does to you

The bands are not a scoring system. They are a series of doors closing.

FOIR	What it means in practice
Under 30%	Comfortable. Approvals are about your score and documents, not your capacity
30 - 40%	Normal. Most lenders will lend, though the amount may be trimmed
40 - 50%	Tightening. Expect a smaller sanction than you asked for, or a longer tenure offered to make the EMI fit
50 - 55%	At the cap for most lenders. Approvals become conditional and rate offers worsen
Above 55%	Declined by most mainstream lenders regardless of score. The offers that remain are the expensive ones

Every lender sets its own cap and its own view of which obligations count. Treat these as the shape of the curve, not a published rule.

The rejection nobody understands is almost always this: a good score, a clean history, and no room left
Being offered a longer tenure instead of the amount you asked for is a FOIR signal - the lender is stretching the EMI down to fit your ratio
Above the cap, the lenders who still say yes are pricing for the risk you represent, which is how a stretched borrower ends up paying the most

Which debt to clear first

The technique

Rank by EMI per rupee of balance, not by interest rate

The avalanche method targets the highest rate, because that minimises interest. The snowball targets the smallest balance, because that sustains momentum. Neither is optimised for FOIR - and when the goal is to be approved for something rather than to save interest, a third ordering beats both.

FOIR is made of EMIs, not of balances or rates. So the account worth clearing first is whichever returns the most EMI per rupee you repay - and that is rarely the biggest debt or the most expensive one.

Rs 80,000 spare, two places to put it

Against the consumer durable loan: frees Rs 4,200/mo
Against the home loan: frees Rs 663/mo
Extra borrowing capacity unlocked (durable): Rs 1,88,811
Extra borrowing capacity unlocked (home loan): Rs 29,805

Capacity at 12 percent over five years on a Rs 60,000 income. Same money, six times the room released.

Account	Balance	EMI	Rate	EMI freed per Rs 1 lakh repaid
Consumer durable	Rs 80,000	Rs 4,200	20%	Rs 5,250
Credit card minimum	Rs 1,50,000	Rs 7,500	42%	Rs 5,000
Two-wheeler loan	Rs 95,000	Rs 3,800	15%	Rs 4,000
Personal loan	Rs 6,00,000	Rs 14,000	14%	Rs 2,333
Home loan	Rs 35,00,000	Rs 29,000	8.5%	Rs 829

Short-tenure debt carries a high EMI against a small balance. That is exactly what makes it efficient to clear when capacity is the constraint.

If you need an approval in the next few months, clear by EMI-per-rupee - it is the fastest route to a usable ratio
If you need to minimise interest and have no approval pending, clear by rate. The two goals genuinely conflict
Closing a small loan entirely beats part-paying a large one, because a partly-paid loan keeps its full EMI
Get the closure letter. An account that shows as live in the bureau keeps consuming your ratio

The three ways people get this wrong

None of these are exotic. They are what happens when the ratio is estimated from memory rather than computed.

Counting the card you 'always pay in full' as zero. The lender counts roughly 5 percent of its outstanding balance, and a Rs 1.5 lakh balance is Rs 7,500 of obligation whatever you intend
Counting gross salary instead of net, which understates FOIR by a fifth or more and produces a plan that fails at the application stage
Taking a longer tenure to make a new EMI fit. It fits, and then it sits on your ratio for seven years instead of three, blocking everything that comes after
Applying to four lenders in a week after a decline. Each is a hard enquiry, none of them fixes the ratio, and the pattern itself becomes a reason to decline

Bringing it down, in order

Roughly in the sequence that returns the most ratio for the least money.

1. Compute it honestly, including every card at 5 percent of balance. Guessing is what produces the surprise at application
2. Clear the small, high-EMI accounts first - consumer durable, two-wheeler, the card with the largest minimum. Close them formally and keep the letter
3. Consolidate what remains only if the arithmetic supports it. One EMI at a lower rate frees ratio; one EMI over a longer tenure only appears to
4. Do not add anything for three to six months. FOIR is read at a point in time, and a recent new obligation is the worst thing on the file
5. Document income you were not counting - a consistent annual bonus or rental income, with proof, raises the denominator as effectively as clearing debt lowers the numerator

Common questions

What is a good FOIR in India?

Under 30 percent is comfortable and under 40 percent is normal. Between 40 and 50 percent you will usually still be approved but for less than you asked. Most mainstream lenders cap somewhere between 50 and 55 percent, and above that approvals fail regardless of credit score. Each lender sets its own cap and its own view of which obligations count.

Why was my loan rejected despite a good credit score?

Most often because your FOIR was already at or above the lender's cap. A credit score describes how you have repaid in the past; FOIR describes what you can afford now, and it is applied first. A 780 score with 58 percent of income already committed to EMIs is declined, while a 710 score at 32 percent is approved. Card minimums and small durable-loan instalments are the obligations people forget to count.

Which loan should I close first to improve my eligibility?

Whichever frees the most EMI per rupee repaid, which is usually a small short-tenure debt rather than the most expensive one. Clearing Rs 80,000 of a consumer durable loan at Rs 4,200 EMI frees Rs 4,200 a month; putting the same Rs 80,000 against a home loan frees about Rs 663. On a Rs 60,000 income that is roughly Rs 1.89 lakh of extra borrowing capacity against Rs 29,805. If your goal is minimising interest rather than getting approved, the order reverses - clear by rate instead.

Do credit cards count in FOIR if I pay them in full?

Yes. Lenders typically count about 5 percent of the outstanding balance as a monthly obligation regardless of your intention to clear it, because the balance is what you are contractually able to revolve. A Rs 1.5 lakh balance adds roughly Rs 7,500 to your obligations. Paying the card down before applying is one of the fastest ways to move the ratio.

Does rent count in FOIR?

Usually not as a fixed obligation, since it is not a credit commitment and does not appear in the bureau report. Some lenders make an informal allowance for it when assessing affordability, particularly at higher loan amounts. It does not help your ratio, and you should not assume it will be excused from your actual ability to pay.

FOIR is the number that decides your approvals and the one nobody shows you. It is fixed obligations over documented income, most lenders cap it between 40 and 55 percent, and it is read before your credit score matters. If you need capacity rather than interest savings, clear the small high-EMI accounts first - Rs 80,000 against a consumer durable loan frees six times the ratio that the same money frees against a home loan. Unyfy computes your live FOIR from the accounts and income it can see, ranks what to clear by capacity released rather than by rate, and shows where you stand before an application puts a hard enquiry on your file.

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