How does a personal loan affect my future borrowing capacity?

A personal loan can have a huge impact on your future borrowing capacity, especially in the context of rising interest rates and stricter lending criteria as seen in 2025.

When you take a personal loan, your overall debt burden increases because you now have a fixed monthly EMI commitment. Lenders assess your eligibility for any new loans by closely examining your debt-to-income (DTI) ratio which is the proportion of your monthly payout that goes towards repaying existing debts. Your eligibility for further loans, such as a home, auto, or even more personal loans, will be diminished if your DTI ratio is high as a result of continuous personal loan repayments. A DTI ratio under 40% is preferred by most lenders because it shows that you have enough extra cash on hand to handle new credit responsibly.

Furthermore, your credit score is directly impacted by the balance owed on your personal loan as well as your repayment history. Missed EMIs or large outstanding debts can lower your credit score, making it more costly and difficult to get new credit. Conversely, regular and timely repayments can gradually improve your credit profile, but the immediate effect of a new personal loan is often a temporary dip in your score due to the increase in total debt.

In periods of rising interest rates, as is the case in 2025, your EMI obligations may also increase if you have a floating rate loan, further tightening your borrowing power. Over-leveraging—taking on more debt than your income can comfortably support—can lead to a debt trap and make it challenging to secure future loans at favourable terms.

To maintain a healthy borrowing capacity:

• Keep your total EMIs within a reasonable percentage of your monthly income.
• Avoid taking multiple loans simultaneously.
• Make all repayments on time to protect and improve your credit score.
• Review your financial commitments regularly, especially if your income or expenses change.

By managing your personal loan responsibly, you can preserve your ability to access credit in the future without undue financial strain.