Understanding Loan Affordability
Before applying for a loan, it's crucial to understand how much you can realistically afford. Lenders use the FOIR (Fixed Obligation to Income Ratio) to determine your loan eligibility, which ensures you don't overburden yourself with debt.
What is FOIR?
FOIR is the ratio of your total monthly loan obligations to your gross monthly income. Most lenders in India maintain a FOIR limit of 50-60%. This calculator uses 55% as the standard FOIR.
FOIR = (Total Monthly EMIs / Gross Monthly Income) × 100Factors That Affect Your Loan Affordability
- Monthly Income: Higher income increases your borrowing capacity
- Existing EMIs: Current loan obligations reduce available borrowing capacity
- Interest Rate: Lower rates allow you to borrow more for the same EMI
- Loan Tenure: Longer tenure increases loan amount but total interest paid also increases
- Credit Score: Better score can get you higher eligibility and lower rates
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Important Consideration
Just because a bank approves a loan doesn't mean you should take the maximum amount. Keep your FOIR below 50% to ensure financial stability and flexibility.
Tips to Increase Loan Affordability
- Increase Income: Higher salary or additional income sources
- Clear Existing Loans: Pay off smaller loans to free up EMI capacity
- Add Co-Applicant: Spouse or parent's income can be added
- Improve Credit Score: Score above 750 gets better offers
- Opt for Longer Tenure: Reduces EMI but increases total interest
- Higher Down Payment: Reduces loan requirement
Loan Affordability by Income Level
| Monthly Income | Max EMI (55% FOIR) | Approx Loan @ 8.5% for 20 years |
|---|---|---|
| ₹50,000 | ₹27,500 | ₹31.7 lakhs |
| ₹1,00,000 | ₹55,000 | ₹63.4 lakhs |
| ₹2,00,000 | ₹1,10,000 | ₹1.27 crore |
| ₹3,00,000 | ₹1,65,000 | ₹1.90 crore |
FOIR Limits by Lender Type
- Banks: 50-60% FOIR
- NBFCs: 55-65% FOIR (slightly more flexible)
- Housing Finance Companies: 50-60% FOIR
- Microfinance: May have different criteria