Before taking a loan, the real question is not what the EMI is, but whether you can carry it without straining the rest of your life. Lenders and sensible borrowers both use simple ratios to answer this.
The 40% rule
A widely used rule of thumb is to keep all your EMIs combined under 40% of your take-home (in-hand) pay. If you take home Rs 1 lakh a month, total EMIs across home, car and personal loans should stay under about Rs 40,000. This leaves enough for living costs, saving and the unexpected.
What lenders actually look at: FOIR
Lenders use the Fixed Obligations to Income Ratio (FOIR), the share of your income already committed to fixed payments (existing EMIs, rent, credit card minimums). Most lenders want your FOIR, including the new loan, to stay roughly between 40% and 50%. A lower FOIR improves both your eligibility and the rate you are offered.
A worked example
Suppose you take home Rs 80,000 a month and already pay a Rs 10,000 car loan EMI. At a 40% ceiling, your total EMI budget is Rs 32,000, leaving about Rs 22,000 for a new loan. Plug that EMI back into the loan EMI calculator (try different rates and tenures) to see how large a loan it supports.
Keeping EMIs comfortable
- Stretch the tenure to lower the EMI, but remember a longer tenure means more total interest. It is a trade-off, not free.
- Make a larger down payment to borrow less in the first place.
- Clear high-interest debt (credit cards, personal loans) before taking on new EMIs; they wreck your FOIR.
- Leave headroom for rate rises if your loan is on a floating rate.