Installment to Income Ratio IIR
Installment to Income Ratio (IIR) is method by which the lender or the bank evaluates a person’s ability to repay the loan, in terms of percentage of monthly salary that he has to pay. It is a parameter that is used to assess the borrower before lending a loan to him. This percentage is usually a portion of the borrower’s total monthly income over his monthly installment. Different banks or lenders will have different percentage value which usually goes between 33.33 to 40%.
It is very similar to FOIR and is mostly assessed when the borrower applies for a home loan. The IIR is rounded to a maximum of 40% only, since the remaining cash will be required to meet other living expenses.
How to Calculate IIR?
For example, consider a man applying for a home loan of Rs.3, 50,000. His monthly income is around Rs. 60,000. Then the IIR value is calculated as;
40% of his monthly income. i.e., Rs.24, 000. As per the calculated IIR ratio, the customer will be eligible for the home loan and he has to pay a fixed amount lesser than Rs 24,000 in each installments, until his tenure. Depending on the age of the borrower and the statements of the bank, the tenure may vary.
