How banks decide your personal loan eligibility
Banks don’t pick loan amounts randomly. Every personal loan approval runs through one filter: FOIR.
FOIR stands for Fixed Obligation to Income Ratio. It’s the percentage of your monthly take-home that’s committed to EMIs. Most banks have a hard cap. Once you hit it, no more loans regardless of your income level.
The formula: (existing EMIs + proposed new EMI) divided by net monthly salary. If that number crosses 40-50%, most banks decline.
The FOIR math with a real example
Priya works as a software engineer in Bengaluru with a take-home of ₹85,000 per month. She has a car loan EMI of ₹12,000. She wants a personal loan at 12% for 5 years.
Available EMI at 40% FOIR: ₹85,000 × 40% = ₹34,000 minus ₹12,000 existing = ₹22,000 available.
At ₹22,000 available EMI, 12% rate, 5-year tenure, the eligible loan works out to approximately ₹9.9 lakh.
If she closes the car loan first, her available EMI jumps to ₹34,000, and eligible loan jumps to approximately ₹15.2 lakh. Same salary, very different eligibility.
Why the interest rate matters more than you think
At ₹24,000 available EMI:
- 12% rate, 5 years: eligible loan = approximately ₹10.8 lakh
- 18% rate, 5 years: eligible loan = approximately ₹9.3 lakh
- 24% rate, 5 years: eligible loan = approximately ₹8.0 lakh
The rate determines how much of your EMI goes to interest versus principal. At 24%, a much larger chunk goes to interest, so the same EMI buys a smaller loan. This is why CIBIL score matters — a good score gets you 10-12%, a poor score gets you 18-22%, and the eligible amount shrinks by 25-30%.
Conservative vs aggressive FOIR
The calculator shows two numbers: 40% FOIR (conservative, what PSU banks typically allow) and 50% FOIR (what some private banks and NBFCs allow). The difference can be 20-25% more loan.
The catch: banks offering 50% FOIR usually charge higher rates. If a PSU bank at 10.5% will give you ₹8 lakh, an NBFC at 50% FOIR might give you ₹10 lakh but at 16%. Total interest on the NBFC loan will be significantly higher. Sometimes the extra loan isn’t worth the extra cost.
The FOIR bar in the calculator
The bar chart at the bottom shows what your FOIR will look like after taking the loan. If it turns red, your FOIR crosses 50% — most banks will decline and you’ll be in NBFC territory with higher rates. If it’s green and below 40%, you’re comfortably within standard bank limits.