How to prioritize multiple loans smartly?

Managing one EMI is simple. Managing three or four can feel overwhelming. If you have a home loan, a car loan, and a personal loan running together, the question is clear: which one should you repay first?

Knowing how to prioritize multiple loans smartly can save lakhs in interest and reduce financial stress. In 2026, with rising digital lending and flexible credit options, many Indian households carry more than one loan at a time.

At Saarathi.ai, we have observed that borrowers often repay loans emotionally instead of strategically. This guide will help you build a structured repayment plan that lowers interest costs, protects your credit score, and improves cash flow.

Why Loan Prioritization Matters

Every loan carries:

• Interest cost

• Tenure

• EMI obligation

• Credit score impact

Regulatory oversight from the Reserve Bank of India has strengthened transparency norms, but the repayment strategy still depends on you.

If loans are not prioritized correctly:

• You may overpay interest

• Your EMI burden stays high longer

• Financial stress increases

• Credit score may suffer

A structured approach makes debt manageable.

Step 1: List All Your Active Loans

Create a simple table:

This clarity is the first step toward control.

You can track multiple applications and loan statuses in Saarathi Bazaar if they were applied via Saarathi.ai.

Step 2: Understand the Two Core Repayment Strategies

1. The Avalanche Method

Focus on repaying the loan with the highest interest rate first while paying minimum EMIs on others.

In the above example, the personal loan at 16 percent should be cleared first.

Benefits:

• Minimizes total interest paid

• Mathematically optimal

This method is financially efficient.

2. The Snowball Method

Repay the smallest outstanding loan first, regardless of interest rate.

Example: Clear Rs 3 lakh personal loan first if it is smallest, even if interest is not highest.

Benefits:

• Psychological motivation

• Quick wins

• Reduces number of EMIs faster

Choose based on your personality and discipline.

Step 3: Prioritize High-Interest Unsecured Loans

In India, unsecured loans like personal loans and credit card dues often carry higher interest rates compared to secured loans like home loans.

Financial trend reports in the Economic Times regularly highlight the rapid growth of unsecured retail credit.

High-interest loans should typically be cleared first because:

• Interest compounds faster

• EMI pressure is heavier

• Default risk impacts credit score more sharply

At Saarathi.ai, our Recommendation Engine often suggests restructuring high-interest debt before adding new borrowing.

Step 4: Do Not Ignore Tax Benefits

Home loans offer tax deductions under applicable sections of the Income Tax Act.

If your home loan interest is 8.5 percent and offers tax savings, its effective cost may be lower than it appears.

Therefore:

• Do not rush to prepay home loans if tax-adjusted cost is low

• Focus on higher-cost loans first

This ensures capital efficiency.

Step 5: Maintain EMI-to-Income Balance

Total EMIs should ideally remain below 35 to 40 percent of your net income.

If your income increases, use surplus wisely:

• Increase prepayment for high-interest loans

• Avoid taking new lifestyle debt

Before applying for a fresh loan, you can compare personal loan offers on Saarathi.ai and check whether your existing EMIs leave enough affordability margin.

Step 6: Consider Loan Consolidation

If you have:

• Multiple personal loans

• High-interest credit card balances

• Different due dates

You may consider consolidating into a single lower-rate loan.

Benefits include:

• Simplified repayment

• Possibly lower interest

• Single EMI

• Better financial tracking

However, consolidation only makes sense if the new interest rate is meaningfully lower and tenure is not extended excessively.

Step 7: Avoid Prepayment Penalty Traps

Before prepaying, check:

• Prepayment charges

• Foreclosure penalties

• Lock-in period

• Processing fees for refinancing

Industry analysis from CRISIL suggests that borrowers should compare refinancing costs carefully before switching lenders.

Sometimes prepayment charges may offset expected savings.

Smart Allocation of Extra Money

If you receive:

• Annual bonus

• Business profit

• Tax refund

• Gift money

Follow this priority sequence:

1. Clear high-interest unsecured loans

2. Build emergency fund if insufficient

3. Prepay medium-interest loans

4. Invest surplus for long-term goals

Do not invest aggressively while carrying 16 to 18 percent loan interest unless investment returns are consistently higher.

Psychological Discipline Matters

Debt prioritization is not just math. It is behavior.

To stay consistent:

• Automate EMIs

• Track outstanding monthly

• Celebrate small milestones

• Avoid new unnecessary loans

Using structured dashboards like Saarathi Bazaar helps you monitor applications and loan progress transparently.

When Not to Prepay Early

Sometimes early repayment is not ideal:

• Home loan with low interest and tax benefit

• Loan with no financial stress

• When you lack emergency savings

• When prepayment penalty is high

Liquidity is as important as debt reduction.

Example Strategy in Action

Assume:

Income: Rs 1,20,000 per month
Total EMIs: Rs 45,000

Loans:

• Personal loan at 15%

• Car loan at 9%

• Home loan at 8.5%

Extra monthly surplus: Rs 15,000

Smart plan:

• Pay Rs 15,000 extra toward personal loan

• Close it 8 to 10 months earlier

• Redirect freed EMI toward car loan

• Then gradually prepay home loan

This cascade reduces interest dramatically.

Avoid These Common Mistakes

• Prepaying lowest-interest loan first

• Ignoring emergency fund

• Extending tenure repeatedly

• Taking new loan after closing one

• Missing EMI due dates

Even one missed EMI can negatively impact credit score.

Digital Tools Make Prioritization Easier in 2026

Modern lending platforms allow:

• EMI simulations

• Refinancing comparisons

• Eligibility checks

• Transparent fee structures

At Saarathi.ai, you can explore refinancing options, compare structured offers across 110 plus lenders, and ask eligibility questions via Saarathi AI expert chatbot before restructuring debt.

Paperless processing ensures faster decisions without repeated documentation.

FAQs

1. Which loan should I repay first?

Usually the one with the highest interest rate, especially unsecured loans.

2. Is it smart to close a home loan early?

It depends on interest rate, tax benefits, and your liquidity position.

3. Should I consolidate multiple loans?

Yes, if the new rate is lower and tenure is reasonable.

4. Can prepayment hurt my credit score?

No. Timely repayment improves credit profile.

5. How can Saarathi.ai help with multiple loans?

You can compare refinancing options, evaluate EMI affordability, and track applications transparently through Saarathi Bazaar.

Conclusion

Managing multiple loans is not about panic. It is about priority.

Remember:

• List all loans clearly

• Target high-interest debt first

• Maintain emergency fund

• Avoid unnecessary refinancing

• Keep EMIs within 40 percent of income

With discipline and data-driven decisions, debt becomes manageable.

Compare smarter refinancing and structured loan options on Saarathi.ai today and take control of your EMIs confidently.