How does the HFI arrive at the Instalment of Income Ratio (IIR) Percentage?
Ans.: There is a limit on the IIR that a person can afford and this calculation varies from one HFI to another. The IIR is normally fixed by the HFI on the basis of their perception of your repayment capacity every month. The parameters on which the IIR is typically based are your actual salary details, qualifications, employer / business, years of experience, growth prospects, alternate employment prospects and sources of other income, if any. The IIR is normally restricted to about 40% of your monthly gross income. The HFIs justify this 40% with the following assumptions. About 10% of your income is spent on other loans, if you have any or if you avail of one in the future. About 25% of your income gets deducted by way of statutory deductions and for investment purposes. You also need to spend at least 25% of your income to meet your monthly expenses. This leaves back 40%, which is taken as your repayment capacity for this loan.
