Why Taking Loans to Pay EMIs Has Become a Common Route
In recent years across India, an alarming trend is quietly growing: borrowers are taking fresh loans specifically to pay existing Equated Monthly Installments (EMIs). What seems like a temporary fix gradually morphs into a debt spiral. Financial writers and analysts who explore this route often refer to studies like Emi Burden Insights, which found that salaried individuals in India spend more than 33% of their monthly income on EMIs. :contentReference[oaicite:0]{index=0}
To understand why this happens, imagine a young professional in a Tier-3 town with a ₹30,000 salary. They take a smartphone loan with an EMI of ₹1,200. Within a year, they add a personal loan EMI of ₹2,500 to manage family expenses. Suddenly their EMI burden reaches ₹5,000-₹6,000. When the next month salary is delayed, the only visible shortcut is another instant loan to pay one of the EMIs—just to stay current.
That shortcut is often marketed aggressively by digital lenders: “Quick money to pay your EMIs, stay clean.” For a borrower anxious about credit reports and future access, the offer appears safe. The reality though is much more complicated.
The root of this cycle lies in two key factors. First, income stagnation and unpredictable cash flows force borrowers to stretch. Second, credit availability has expanded—but often without enough education on safe repayments. Many digital lenders see the chance and respond with “top-up” or “EMI-support” loans, reinforcing the loop.
Insight: Borrowers don’t start a loan to pay an EMI because they’re reckless—they do it because the visible option seems smaller than the hidden risk.The problem isn't only that they borrow more—it’s that each additional loan adds another EMI, another debit date, another source of stress.
How the EMI-Renewal Loan Cycle Grows Unchecked
Once the first replacement loan is taken to pay an EMI, the cycle often gains speed. Borrowers analyzing this process frequently refer to technical explanations like Debt Rollover Mechanics, which break down how one loan is used to service another and how interest stacks up.
Here’s how it typically unfolds:
- Step 1: Borrower takes loan A and commits to EMI X.
- Step 2: Income drops, or expenses surge, and borrower struggles to pay EMI X.
- Step 3: Borrower takes loan B to pay EMI X.
- Step 4: Now borrower has EMI X + EMI₍B₎ (for loan B).
- Step 5:
The invisible danger is interest and fees. Loan B likely has higher interest or extra charges compared to the original EMI. Unless the borrower budgeted for those extra costs, the burden increases silently.
For example, a small-town retail business owner might pay ₹8,000 in EMIs monthly. To manage a bad month he takes a ₹50,000 fast loan at 36% interest to pay those EMIs. The repayment becomes ₹7,000 monthly on the new loan. Suddenly his cash-flow is hostage to servicing multiple loans.
Add to this the psychological pressure of “keeping up appearances.” Many borrowers prefer to stay “clean” in repayment because future access matters. This drives the “loan to pay EMI” route even when it’s financially unhealthy.
Why Borrowers Often Realise the Trap Too Late
The worst part of this cycle is how silently it grows. Borrowers rarely begin with a plan and often only realise the trap when payments stop. Behavioural analysts relate this pattern to studies such as Behavioural Debt Signals, which describe how denial, shame and avoidance amplify debt risk.
Why many notice too late:
- Small increments feel manageable – A ₹1,000 EMI looks fine in isolation.
- Multiple loan apps hide the bigger picture – Borrowers lose track of total EMIs.
- Income doesn’t grow with debt – EMIs rise faster than salary.
- No visible alarm triggers – Loan statements may show individual loan health, not combined burden.
- Emotion hides risk – Fear, shame, and over‐confidence delay action.
A recent media story showed a person with a ₹30,000 monthly salary paying EMIs of ₹22,800 and taking another loan to cover them. He fell into the trap because the relief loan seemed easy, but the pattern repeated.
Once a borrower begins taking new loans to pay EMIs, the pressure shifts from managing debt to surviving debt. Each EMI date becomes a countdown rather than a scheduled payment.
How to Break Free From the Loans-to-EMI Cycle
The good news: cyclic borrowing is reversible if recognised early. Borrowers can apply structured strategies—similar to those described in Debt Exit Strategies—to regain control and halt the spiral.
Here’s how:
- 1. List all loans and EMIs – Write down every loan, EMI amount, date and interest rate.
- 2. Stop taking any new loan – Prevent the cycle from expanding further.
- 3. Prioritise the smallest EMI or highest interest loan to close first.
- 4. Align all EMI dates to salary influx – where possible request lender to shift due date.
- 5. Build a buffer fund – even ₹500-₹1,000 monthly helps for emergencies.
- 6. Seek help early – speak with your lender about restructure or moratorium if you are slipping.
- 7. Use income-boost options – side gigs, part-time work, monetise skills to increase cash-flow.
- 8. Monitor your credit report – correct any errors and avoid new red-flags.
Breaking the cycle doesn’t require huge sacrifices—it requires honesty and early action. The longer you wait, the harder it becomes.
Tip: If you are considering a loan just to pay an existing EMI—pause. Ask yourself: “Will I still be able to repay it if my income drops by 10%?” If the answer is no, don’t borrow.Remember, the goal isn’t just to stay current—it’s to remain financially stable.
Frequently Asked Questions
1. Why do so many Indians take loans to pay EMIs?
Because their EMI burden grows faster than income, and taking a new loan seems like the easiest option.
2. Does taking a loan to pay an EMI help me financially?
Usually no—it often increases overall interest and adds more EMIs, making the burden worse.
3. How can I tell I am entering the cycle of loans to pay EMIs?
If you borrow another loan just to pay an EMI, you’re likely in the cycle; tracking all EMIs helps confirm it.
4. Can lenders help me restructure my loans in this cycle?
Yes. Many banks/NBFCs offer restructuring or consolidation—ask proactively before EMIs slip.
5. What’s the first step to break this loop?
Stop borrowing more, list all debts, and build a minimal buffer to regain breathing space.