Table of Contents
As financial stress and complications intensify among households, a rising number of individuals in the country are turning towards informal borrowing from close networks to meet personal loan repayments, a trend that is clearly full of risks and possibility of setbacks.
In such an environment it is important for the borrowers to carefully measure the pros and cons of asking for funds from near and dear ones, especially friends.
Kundan Shahi, Founder, Zavo, says “When borrowing from a friend to repay a personal loan, consider several key aspects: communicate the reason clearly, define repayment terms and timelines, treat the arrangement with the seriousness of a formal loan, account for potential setbacks like job loss or medical emergencies, and recognise that missed EMIs can impact both your credit score and personal relationship.”
Hence, keeping the above factors in mind, it becomes crucial to understand the broader debt landscape before turning to informal borrowing from friends or family. One such area worth examining is the recent shift in how households are managing their financial obligations in the country.
Household debt: Stays moderate, but shifting heavily to consumption
According to the RBI’s June 2025, Financial Stability Report, household debt in the country stood at 41.9% of GDP at the end of December last year as per a report by Reuters. This figure is lower than comparable emerging market economies. Still, consumption led borrowing now makes up 54.9% of all household debt. Whereas, non-housing retail loans equated to 25.7% of disposable income as of March last year.
Personal loan delinquencies reach six‑quarter high
Furthermore, data compiled by fintech self regulatory group FACE, showcases small ticket fintech personal loans overdue by more than 90 days rose to 3.6% by March 2025. This is the highest in six quarters. Stress is notably higher in tier-3 and rural areas and among younger borrowers under 25.
Also Read | The psychology behind taking a personal loan: Why we borrow
That is why keeping the above crucial factors in mind, borrowing from friends and family to repay a pending loan becomes a very complicated and challenging affair.
The reason for the same is that when funds are borrowed in near relations, sometimes this kind of borrowing complicates even the dearest of relations. Irresponsible borrowing can not only end relations but even result in serious legal ramifications for the borrower.
Key considerations before borrowing informally to repay forced EMIs
- Relationship strain: Unclear expectations and improper discussion before borrowing can damage trust. That is why before moving ahead honestly discuss your financial situation.
- No formal agreement: Lack of documentation increases risk of doubts, repayments and betrayal later on. This can make things very difficult for both the borrowers and lenders.
- Revolving‑debt trap: Borrowing to repay a pending personal loan may entrench debt. Such a situation can result in the borrower falling in a debt trap if not planned efficiently.
- No credit history benefit: It is also crucial to keep in mind that informal repayments don’t aid your credit profile. As the repayment of such funds is not tracked.
- Delayed structural solutions: Reliance on informal borrowing may postpone seeking formal debt counselling or restructuring. In such cases generally professional advice is not taken thus resulting in financial mismanagement.
Hence, informal loans provide only short term relief and experts advise borrowers to consider formal solutions such as debt consolidation or bank restructuring. Fintech’s disbursed 10.9 crore small ticket loans worth ₹1.06 lakh crore in FY25, still defaults have risen, especially among young and sub urban borrowers, signalling growing stress and difficulties in repayments.
Also Read | Can NRIs get a personal loan in India? Key rules and eligibility explained
This has forced regulators to subsequently tighten norms, such as capping default loss guarantees to improve portfolio quality. Whereas household debt is still under control, the surge in unsecured, consumption driven borrowing is raising concerns amid rising economic challenges.
For all personal finance updates, visit here.
Disclaimer: Mint has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit scores. Mint does not promote or encourage taking credit, as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
