Around 45% of middle-class families spend over 40% of income servicing debt, with per capita borrower debt at Rs 4.8 lakh — up 23% in two years. Loans overdue 90+ days rose to 3.6%.
The EMI Trap: Indians Borrowing Just to Repay Loans
A third of the salary gone before the month starts. India's middle class is increasingly taking new loans to pay old ones — the classic warning sign of a debt spiral.
India's easy-credit boom has a quiet cost, and it is showing up in household budgets. Roughly 45% of middle-class families now spend over 40% of income just servicing debt — a threshold financial experts treat as acute distress.
The Warning Sign
The most worrying pattern is borrowing to repay borrowing. Many households use one credit card to pay another, or take app-based loans to cover EMIs. On paper the repayments look regular. Underneath, the total liability keeps growing.
The Numbers
Per capita debt for individual borrowers stands at about Rs 4.8 lakh, a 23% jump in just two years. As much as 33% of monthly salaries are being diverted to EMI repayments, squeezing budgets for food, healthcare and children's education.
Defaults Are Rising
Loans overdue by more than 90 days rose to 3.6% in March 2025, up from 3.3% a year earlier, alongside an uptick in credit card delinquencies.
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Support Our WorkHow to Spot It Early
If you are using new credit to make minimum payments, if EMIs exceed 40% of take-home pay, or if you have stopped tracking total outstanding balance, those are the classic markers. Consolidating high-interest debt and pausing new borrowing are usually the first steps advisors recommend.
More detail at Business Today.
This article is for information only and is not financial advice. Please consult a qualified financial advisor about your own situation.
Frequently Asked Questions
What is the 'EMI Trap' affecting Indian households?
The 'EMI Trap' describes a situation where Indian households resort to borrowing new loans, often via credit cards or app-based loans, primarily to repay existing loan installments. This practice, while making repayments appear regular, leads to a continuous increase in total debt liability.
How to spot early warning signs of being in the EMI Trap?
Early warning signs include using new credit to make minimum payments, if EMIs exceed 40% of your take-home pay, or if you have stopped tracking your total outstanding loan balance. These indicators suggest a growing financial distress.
What is the current level of per capita debt for individual borrowers in India?
Per capita debt for individual borrowers in India is approximately Rs 4.8 lakh, which represents a 23% increase over the past two years. This translates to about 33% of monthly salaries being allocated to EMI repayments.
What are the initial steps advised if you recognize signs of the EMI Trap?
Financial advisors typically recommend consolidating high-interest debt into a single, potentially lower-interest loan and immediately pausing any new borrowing. These actions are designed to reduce the immediate burden and prevent further debt accumulation.
Atomni Editorial Desk
Editorial Desk
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