How does a personal loan affect my credit score and home loan eligibility?

Asked 20 Feb 2026·4123 views

I took a personal loan of ₹3 lakhs 18 months ago for a family wedding at 14% interest. My EMI is ₹27,000 per month. I am planning to apply for a home loan of ₹40 lakhs. My salary is ₹1.2 lakhs per month. Will the existing personal loan EMI reduce my home loan eligibility? What ratio of EMI to salary is considered safe by banks? Should I foreclose the personal loan before applying for home loan?

Asked by Vikram Mehta

2 Answers

Banks follow the NRI formula: EMI of all loans should not exceed 50-60% of net monthly income. With ₹1.2 lakh salary and ₹27,000 personal loan EMI, you have only ₹93,000 left for a home loan EMI. At 8.65% for 20 years, a ₹40 lakh loan EMI is approximately ₹34,800. ₹27,000 + ₹34,800 = ₹61,800 which is 51.5% of your salary — right at the limit. You may struggle to get approved or may need a larger down payment.

Answered by Anita Desai · 26 Feb 2026

Foreclosing the personal loan before applying for home loan will improve your credit score and reduce your debt-to-income ratio. However, early foreclosure charges are usually 2-4% of outstanding principal. Calculate whether the home loan interest savings outweigh the foreclosure charge. If your credit score is above 750, you may get approved without foreclosing.

Answered by Anita Desai · 24 Feb 2026