Existing EMIs Can Reduce Your Personal Loan Eligibility and Most People Have No Idea!

Key Takeaways

• Your existing EMIs reduce your chances of getting a personal loan. Banks usually allow total EMIs up to 40-50% of your monthly income, so every ongoing EMI leaves less space for a new loan.
   
• Earlier, banks focused mainly on credit scores. Now, RBI guidelines push banks to assess your full debt-to-income (DTI) ratio before approving any new loan.

Running EMIs? Here is How They Quietly Shrink Your Loan Limit!

It becomes harder to get a personal loan if you are already paying EMIs on a car, home, or any other loan. The banks check how much of your income is already committed. The less free income you have, the smaller the loan you qualify for.

This matters both now and in the future. In the short term, you may get a smaller loan than you expected. Over time, having too many EMIs can make it difficult to manage your finances and get out of debt.

How the 40-50% Rule Works Against Millions of Indian Borrowers?

Most banks in India follow an FOIR (Fixed Obligation to Income Ratio) rule. Your total monthly EMIs must not cross 40-50% of your take-home income. Here is an example:
 

For a large section of salaried Indians earning under ₹50,000 a month, even one existing EMI can block them from getting a meaningful personal loan. This is a real concern for middle-income households that need emergency funds.

What Experts Say and What You Can Do About It?

Adhil Shetty, CEO of BankBazaar, has noted that borrowers often underestimate the impact of FOIR. He has stated that applicants with a debt-to-income ratio above 50% are either rejected or offered much smaller loan amounts. 

The Reserve Bank of India, in its 2023 framework on consumer credit, also flagged rising household debt and urged lenders to tighten eligibility checks.

You are not without options. Here is what you can do:

• Pre-close smaller loans to free up FOIR capacity before applying.
• Add a co-applicant with a clean income to boost combined eligibility.
• Opt for a longer loan tenure to keep the new EMI amount low.
• Improve your credit score above 750 to negotiate better terms.

The key is to reduce your existing obligations before adding a new one.

Conclusion 

The existing EMIs do reduce your personal loan eligibility, but it is manageable with some planning. You should know your FOIR, clear smaller debts first, and apply only when your debt load is under control. Always compare lenders since FOIR limits vary between banks and NBFCs.

Frequently Asked Questions 

1. What affects my personal loan eligibility instantly?
Your income, existing EMIs, and credit score affect your eligibility the most. Banks mainly check your debt-to-income ratio. Your chances of getting a higher loan amount reduce if a large part of your income is already going into EMIs.

2. Can banks reduce my EMI by increasing the loan duration?
Yes, banks can lower your EMI by extending the loan tenure. This makes monthly payments more manageable, but you may end up paying more interest over time.