How Much of Your Salary Should Go to EMIs?

A bank will tell you what you can borrow. That number protects the bank, not your Saturday. The more useful question is how much of your salary can go to EMIs while the rest of your life still works.

The numbers lenders use

Indian lenders assess your fixed obligation to income ratio — all your existing EMIs plus the proposed one, as a share of net monthly income. In practice most lenders are comfortable somewhere around 40–55%, with the higher end offered to higher earners, because someone taking home ₹3,00,000 can survive a larger share going out than someone taking home ₹40,000.

That is an underwriting limit. It says the loan will probably be repaid. It says nothing about whether you will be able to save, replace a laptop, or take a week off.

The ceilings worth holding yourself to

• All EMIs together: 35–40% of take-home, and closer to 30% if you are also paying rent.
• Home loan alone: up to about 35%. It is the one debt that buys an appreciating asset and a place to live.
• Car loan: 10–15% at most. The asset loses value from day one.
• Consumer EMIs on phones, appliances and holidays: aim for zero. These convert a want into a fixed obligation for two years.

Under these, a bad quarter is uncomfortable. Above 50%, a bad quarter is a crisis, and the first thing that stops is saving.

The trap that catches first-time buyers

If you are renting while paying the EMI on an under-construction home, count rent plus EMI against the ceiling, not the EMI alone. A 35% EMI with 25% rent is 60% of take-home committed before groceries, and possession dates slip. Budget for the overlap lasting longer than promised.

Stress-test before you sign

Most home loans here float. If your loan is at 8.5% and rates move two points, the lender will usually extend the tenure rather than raise the EMI — but only until the tenure cannot stretch further, and then the EMI rises.

Run both numbers in the EMI calculator: your EMI at today's rate, and at two points higher. If the higher figure would break the month, borrow less rather than assuming rates only fall.

Three more questions worth answering honestly before signing:

1. Would one month without income wipe out the plan? If yes, build the emergency fund first.
2. Does the EMI still leave you saving at least 15–20% of take-home? If not, the house is buying your future.
3. Is the tenure longer than the thing will last? A five-year loan on a phone you will replace in three is a bad trade at any EMI.

If you are already above the line

• Prepay the most expensive loan first. Personal and consumer loans, then car, then home. See prepay or invest for when this beats investing.
• Ask about a balance transfer. If rates have moved or your credit score has improved, another lender may reprice the same loan. Check the processing fee against the interest saved.
• Extend the tenure as a last resort. It lowers the EMI and raises the total interest. It is a cash-flow fix, not a saving.
• Sell the asset behind the smallest loan. A car worth less than its outstanding loan is a problem that grows with time.
• Stop adding. No new EMIs until the ratio is back under control; a no-cost EMI is still an obligation.

Keep the ratio in front of you

Most people do not know their EMI share of income, because the EMIs leave silently on different dates. Add them up once: every instalment, including the ones you forgot, divided by your take-home.

Becom's budget planner carries each loan forward month by month, advances it by one instalment and keeps EMIs separate from ordinary spending — so the ratio is something you can see rather than something you reconstruct on the day you want to borrow again. The savings rate calculator shows the other half of the picture: what is left after everything committed.

One rule keeps this simple. Decide your ceiling before you go loan shopping, not while sitting across from someone whose job is to approve a larger number.