Hey there, fellow finance explorers! Ever heard of something called FOIR? If not, don’t sweat it – you’re in the right place. Imagine this: you’re thinking about getting a loan or a credit card in India, and suddenly, you come across this term: FOIR.

But what does it mean?

FOIR is short for Financial Obligations-to-Income Ratio. Yeah, it sounds like a lot, but stick with me here. Think of it like this: FOIR is your financial report card. It shows how much of your income goes toward paying off debts such as loans or credit card bills. The higher your FOIR, the riskier you might seem to lenders.

Now, before you start yawning, here’s why this matters, especially if you’re fresh out of high school: understanding FOIR is like having a secret weapon in your financial toolkit. It’s not just for adults with briefcases and power suits; it’s for anyone who wants to make smart choices about money. 

In this guide, we will break down FOIR in plain English (no finance degrees required), spill the beans on how it’s calculated (hint: it’s no rocket science), and show you why it’s more important than you might think.

So, if you’re ready to level up your financial knowledge and be the boss of your financial future, buckle up. FOIR might seem like just another boring acronym, but trust me, it’s gonna be a game-changer.

Understanding FOIR

FOIR is a fancy way of saying how much of your income goes towards paying off debts each month. It helps banks figure out if you can handle more debt without getting overwhelmed. Imagine you have a jar where you put all your pocket money and another jar where you keep money for paying off your debts, like buying stuff with your friend’s money and promising to pay it back later. Now, let’s think of your total pocket money as your income and the money you put aside for debts as your debt obligations.

Now, let’s put these two jars together to understand FOIR

Imagine you have two jars: one for your income and one for your debt obligations. FOIR is like looking at how much money is in each jar and figuring out the ratio between them. It helps you see if you’re using too much of your income to pay off debts.

If you’re putting a lot of money into the debt jar compared to your income jar, it means you’re spending a big chunk of your money on paying off debts. And that’s what FOIR measures – it tells you how much of your income is going towards paying off debts each month. So, when lenders look at your FOIR, they want to see if you’re managing your money well. If you’re using too much of your income to pay off debts, it might be a sign that you’re struggling to keep up with your expenses.

In simple terms, FOIR helps you understand whether you’re spending too much of your money on debts or if you’re doing a good job of managing your finances. It’s like a financial health check-up that tells you how well you’re balancing your income and expenses. And by understanding FOIR, you can take steps to improve your financial well-being and make smarter decisions with your money.

FOIR Calculation

To find your FOIR, you just need to do a simple math problem. You divide the total amount you pay towards debts each month by your total income and then multiply it by 100 to get a percentage. Let’s break it down:

Total Monthly Debt Obligations: This includes all the money you pay each month for loans, credit cards, and other debts.

Gross Monthly Income: This is how much money you make before any deductions, like taxes or insurance.


Let’s say you pay ₹25,000 towards debts each month, and you earn ₹75,000 before any deductions. Here’s how you’d calculate your FOIR:

FOIR = (25,000 / 75,000) * 100

FOIR = 33.33%

So, your FOIR is 33.33%, which means about one-third of your income goes towards paying off debts.

Why FOIR Matters?

FOIR matters because it’s like a financial snapshot that banks use to assess your ability to manage debt. When your FOIR is low, it signals to banks that you have plenty of income left over after paying your debts, making you a more attractive borrower. This shows them that you’re likely to be able to handle additional debt without struggling to make payments. On the other hand, if your FOIR is high, banks might worry that you’re already stretched thin financially and might have difficulty managing more debt. So, maintaining a low FOIR is important if you want to increase your chances of getting approved for loans on favourable terms.

Understanding FOIR can help you in a few ways

1. Loan Approvals

When you apply for a loan, whether it’s for a big purchase like a house or a car, or even for something smaller like a personal loan, banks want to make sure you can pay it back. They use your FOIR as one of the tools to assess this. A lower FOIR is seen as a good thing because it means you have more money left over after paying your debts. This shows banks that you’re managing your money well and can handle taking on more debt responsibly. So, if you want to increase your chances of getting approved for a loan, it’s important to keep your FOIR low by managing your debts wisely.

2. Financial Health

Your FOIR gives you insight into how well you’re managing your money overall. If your FOIR is high, it means a big chunk of your income is going towards paying off debts, which might leave you with less money for other important things like savings, emergencies, or even just enjoying life. Understanding your FOIR can help you assess your financial health and identify areas where you might need to make changes. For example, if your FOIR is high, it could be a sign that you need to find ways to reduce your debts or increase your income to achieve a better balance.

3. Better Loan Terms

Having a low FOIR can also work in your favor when it comes to borrowing money. Banks see borrowers with low FOIRs as less risky because they have more room in their budget to comfortably manage additional debt. As a result, they might offer you better terms on your loan, such as lower interest rates or higher loan amounts. This can save you money in the long run and make it easier for you to repay the loan without feeling financially stretched.

4. Long-Term Financial Planning

Beyond immediate loan approval considerations, FOIR plays a crucial role in your long-term financial planning. By monitoring your FOIR over time, you can track your progress toward debt reduction, savings accumulation, and overall financial well-being. A declining FOIR indicates that you’re making positive strides in reducing debt and improving your financial health, whereas a rising FOIR may signal financial distress or unsustainable spending habits. Armed with this information, you can make informed decisions about managing your finances, setting realistic goals, and planning for your future.

Tips to Improve Your FOIR

If your FOIR is higher than you’d like, here are some things you can do to bring it down:

1. Pay off Debts

One of the most effective ways to improve your FOIR is to focus on paying off your existing debts. This could mean paying more than the minimum amount due on your loans or credit cards each month or even considering debt consolidation to streamline your payments and potentially lower your interest rates.

2. Invest in Goal-Based Savings App

Consider using a goal-based savings app like Dive to help you achieve your financial goals without resorting to debt. These apps can help you set and track progress toward specific financial goals, such as building an emergency fund or saving for a down payment on a home. By investing in your future through smart savings strategies, you can reduce your reliance on debt and improve your FOIR over time.

3. Budget Smartly

Take a close look at your spending habits and identify areas where you can cut back. Creating a budget and sticking to it can help you prioritize your expenses and ensure you’re not overspending on non-essential items. Every rupee you save can be put towards paying off debts or increasing your savings, ultimately improving your FOIR.

4. Avoid New Debts

Finally, be cautious about taking on new debts until you’ve improved your FOIR. Avoid applying for new loans or credit cards unless absolutely necessary, as each new debt will increase your monthly obligations and potentially worsen your FOIR. Focus on paying off existing debts and improving your financial situation before taking on additional borrowing.

5. Make More Money

Increasing your income can also help improve your FOIR. Look for opportunities to earn extra money, such as taking on a part-time job, freelancing, or starting a side hustle. Even small additional sources of income can make a difference in your overall financial picture.


FOIR might sound complicated, but it’s actually a pretty simple concept once you get the hang of it. Knowing your FOIR and how to improve it can make a big difference in your financial life, whether you’re planning to buy a house, a car, or anything else that requires borrowing money. So, take charge of your finances, keep an eye on your FOIR, and pave the way towards a brighter financial future!