When unexpected situations arise, a short-term loan can save you by fulfilling immediate needs by giving you a quick-term loan in Kolkata. But did you know that lenders consider your Fixed Obligation to Income Ratio (FOIR).
When approving your loan application? A short-term loan is a type of loan that provides you quick easy loans online for a short period, which you can easily repay within a timespan from a few days to months. Short-term loans help you to cover emergency expenses, such as medical bills, car repairs, or rent. However, lenders need to ensure you can repay the loan, and that's where FOIR comes in.
What is FOIR?
FOIR represents the percentage of your monthly gross income that goes towards paying fixed obligations, such as loan repayments, credit card debt, rent, and utility bills. When it comes to applying for a loan, lenders consider several factors to evaluate your creditworthiness. One such important factor is your Fixed Obligation to Income Ratio (FOIR). In simple terms, FOIR calculates how much of your income is already committed to paying off existing debts and expenses. A higher FOIR indicates a larger portion of your income is dedicated to servicing these fixed obligations, leaving less room for discretionary spending, savings, and debt repayment. Simultaneously, a lower FOIR suggests a more manageable debt burden and greater financial flexibility.
Understanding your FOIR is essential for maintaining a healthy financial balance and making informed decisions about taking on a new loan or adjusting your budget. In this blog, we will discuss what FOIR is, and how you can maintain a healthy FOIR to improve your chances of securing a loan with favorable terms.
Role of FOIR in Loan Amount Calculation
Lenders use FOIR to assess your repayment capacity and determine the loan amount you are eligible for. Typically, lenders prefer a FOIR of 50% or less.
How to Maintain a Healthy FOIR?
To improve your chances of securing a loan with favourable terms, follow these tips to maintain a healthy FOIR:
a. Keep your debt-to-income ratio low
b. Pay off high-interest debts and expenses
c. Avoid taking on new debt
d. Increase your income
e. Create a budget and prioritize expenses
f. Monitor and adjust your FOIR regularly
Tips to maintain a healthy FOIR:
1. Keep Debt in Check: Aim to keep your total debt payments (including housing expenses, credit cards, and other loans) below half of your gross income. This will help you maintain a comfortable debt-to-income ratio.
2. Tackle High-Interest Debt: Focus on paying off high-interest debts, such as credit card balances, as soon as possible. Consider consolidating debt into lower-interest loans or balance transfer credit cards to save on interest.
3. Be Cautious with New Debt: Think twice before taking on new debt. Explore alternative options, such as saving up or using cash instead of credit, to avoid accumulating more debt.
4. Boost your Income: Look for ways to increase your income, such as taking on a side hustle, negotiating a raise, or pursuing additional education or training. This will help you improve your debt-to-income ratio.
5. Prioritize Expenses: Track your income and expenses to understand where your money is going. Create a budget that prioritizes essential expenses, savings, and debt repayment to ensure you're making the most of your money.
6. Regularly Review and Adjust: Keep a close eye on your FOIR and adjust your spending and debt repayment strategies as needed to maintain a healthy ratio. This will help you stay on top of your finances and improve your chances of securing a loan with favorable terms.
FOIR plays a significant role in final loan amount calculation, as it helps lenders evaluate your repayment capacity and assess the risk associated with lending to you. By maintaining a healthy FOIR, you can improve your chances of securing a loan with favorable terms. Remember, a lower FOIR indicates a higher repayment capacity, making you a more attractive borrower to lenders.
Also Read: Quick Short-term Loans vs. Traditional Bank Loans