How do banks calculate Loan Eligibility?

Banks use a metric called FOIR (Fixed Obligation to Income Ratio) to decide how much to lend you. Typically, banks cap your total EMIs at 50% of your net monthly income.

The Calculation Logic

1. Total Capacity: If you earn ₹50,000, the bank assumes you need ₹25,000 for living expenses. The remaining ₹25,000 is your "Repayment Capacity".
2. Existing Debts: If you already pay ₹5,000 in car loan EMIs, your capacity drops to ₹20,000.
3. Reverse Calculation: The calculator then finds out how much loan principal you can get for a ₹20,000 monthly EMI at the current interest rate.

Tips to Increase Eligibility

• Increase Tenure: A longer loan term reduces the monthly EMI, allowing you to borrow a larger amount.
• Add a Co-applicant: Combining incomes with a spouse or parent increases your total repayment capacity.
• Clear Existing Debts: Closing small loans frees up your FOIR limit.