New data indicates a concerning trend where a significant portion of borrowers are relying on fresh credit to fulfill their existing Equated Monthly Installment (EMI) obligations. According to a report from debt and loan resolution platform Expert Panel, 40% of borrowers are currently using new loans or credit cards to manage their outstanding EMIs, signaling a potential spiral into deeper financial distress.
The Debt Cycle: Borrowing to Repay
While taking a new loan isn't inherently problematic for individuals with stable income and repayment capacity, the risk escalates dramatically when new credit is acquired specifically to service old debt. This pattern suggests that borrowing is no longer for one-time needs but to sustain previous financial commitments.
The Expert Panel's inquiry and counseling data highlight this critical issue. Borrowers may initially secure a personal loan for a major expense, only to later resort to credit cards, additional loans, or balance transfer facilities when the monthly repayments become unmanageable. This offers temporary relief from immediate cash flow pressure but ultimately adds another layer of financial burden.
Festive Season: A Catalyst for Increased Debt
As the festive season approaches, many households typically turn to unsecured credit options like personal loans and credit cards to fund celebrations, travel, weddings, and consumer purchases. However, for the 40% already struggling, an additional festive loan could severely strain household budgets.
The data further reveals that 60% of borrowers have EMIs that either meet or exceed their total monthly family income. In such precarious situations, taking on more debt leaves minimal room for essential expenses like food, rent, education, medical costs, or unexpected emergencies.
Primary Reasons for Borrowing Beyond Festivities
The report also sheds light on the broader reasons driving borrowing among financially stressed households:
- Medical Emergencies: 26% of borrowing was attributed to health issues.
- Family/Personal Expenses: 22% for events like weddings and education.
- Business/Job Loss: 18% due to income disruption.
- Household/Daily Needs: 15% for everyday living costs.
This diverse range of existing liabilities means a new festive loan would compete with numerous other critical financial obligations for a borrower's limited income.
Income Shocks Worsen Repayment Stress
The ability to manage multiple loans can quickly deteriorate with unexpected income disruptions. Among borrowers who defaulted on repayments, job loss or salary reduction accounted for 31% of cases, followed by a high EMI burden (28%), multiple loans (19%), and medical/family emergencies (12%).
For those already leveraging new credit to manage old EMIs, any sudden decrease in income can make repayment nearly impossible, trapping them in a deeper debt spiral.
Expert Advice: Assess Total Debt Before Borrowing More
Financial experts consistently advise consumers to evaluate their complete monthly debt obligations rather than focusing solely on a new loan's EMI. Before incurring festive expenses, individuals should sum up all existing personal loan EMIs, credit card dues, Buy Now Pay Later (BNPL) payments, and any proposed new EMI.
Crucially, they must also factor in essential household expenses and maintain a buffer for unforeseen costs. The fundamental question isn't whether a lender will approve another loan, but whether the household can comfortably service it without necessitating further borrowing. With 40% of borrowers already in a precarious position, adding another EMI during the festive season risks transforming a short-term spending decision into a prolonged and severe repayment challenge.