What is the rule of 30% EMI?

The 30% EMI rule is a guideline that suggests your total monthly loan payments should not exceed 30% of your gross monthly income. This includes payments for all loans such as home loans, car loans, personal loans, credit card dues etc.

For example, if your gross monthly income is ₹60,000, as per the 30% rule, your total EMIs should not be more than ₹18,000 per month (which is 30% of ₹60,000). This rule helps ensure that your EMIs do not take up a disproportionate part of your income, leaving you cash-strapped to manage other expenses.

The logic behind this rule is that if over 30% of your income is locked into EMIs, you may face difficulties managing your other expenses. Having a high EMI burden leaves you vulnerable to payment defaults if there is an income disruption. It also limits your ability to save and invest.