40% of borrowers are taking fresh loans to repay existing EMIs: Why festive credit can deepen debt

As the festive season approaches, households may turn to personal loans, credit cards and other forms of unsecured credit to fund shopping, travel, weddings and other expenses. But data from debt and loan resolution platform Expert Panel highlights a bigger concern: a significant number of borrowers are already relying on fresh credit to manage existing debt.

According to Expert Panel’s borrower inquiry and counselling data, 40% of borrowers were using new loans or credit cards to manage their existing EMIs. The pattern can indicate a debt cycle in which borrowing is no longer being used only to meet a one-time financial requirement but also to keep up with earlier repayment commitments.

When one EMI leads to another

Taking a new loan does not necessarily create a problem if the borrower has sufficient income and repayment capacity. The risk increases when new borrowing is used to service old debt.

A borrower may initially take a personal loan to meet a large expense and later use a credit card, another loan or a balance-transfer facility when the monthly repayment becomes difficult. This can reduce immediate cash-flow pressure but adds another financial obligation.

Expert Panel's data also shows that 60% of borrowers have EMIs that either exceed or nearly equal their total monthly family income. In such circumstances, an additional festive-season loan could leave little room in the household budget for food, rent, education, medical expenses or unexpected costs.

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Festive spending could add to existing obligations

Festive borrowing can involve expenses ranging from consumer purchases and travel to weddings and family events. However, the data suggests that borrowing among financially stressed households is already driven by a broader range of needs.

Medical emergencies or health issues accounted for 26% of borrowing, making it the largest cited reason in Expert Panel's survey. Family or personal expenses, including weddings and education, accounted for 22%, while business or job-loss-related requirements made up 18%. Household and daily needs represented another 15%.

This means a new festive loan may not be the only liability competing for a borrower's monthly income.

Income shocks can worsen repayment stress

The ability to service multiple loans can change quickly when household income falls. Among borrowers who were unable to repay, job loss or salary reduction was cited in 31% of cases, followed by a high EMI burden relative to income at 28%.

Multiple loans or over-borrowing accounted for another 19%, while medical or family emergencies contributed 12%.

For borrowers already using new credit to manage old EMIs, an income disruption can therefore make repayment considerably harder.

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Check the total debt before taking another loan

Financial experts generally advise borrowers to assess their entire monthly debt obligation rather than looking only at the EMI on a new loan.

Before borrowing for festive expenses, consumers should add existing personal-loan EMIs, credit-card dues, BNPL payments and the proposed new EMI. They should also account for essential household expenses and maintain room for unexpected costs.

The key question is therefore not whether a lender is willing to approve another loan, but whether the household can comfortably service it without relying on further borrowing.

With 40% of borrowers in Expert Panel's data already using fresh credit to manage existing obligations, adding another EMI during the festive season could turn a short-term spending decision into a longer-term repayment challenge.

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