The festive season may last a few weeks, but the EMIs taken to celebrate it can stay for years. A new smartphone, a television or a bigger appliance may seem affordable when the payment is split into small monthly instalments. But add a few such purchases to existing loans, and the pressure on household finances can build quickly.
The first casualty may not be the monthly budget. It could be the money set aside for emergencies, long-term investments or even a planned financial goal.
A survey by Finnovate Financial Services highlights why this deserves attention. Of the 941 people surveyed, 56 per cent said they use debt to maintain their standard of living. One in 13 respondents described their debt as unmanageable.
Also Read | Layoffs Are Rising In Tech, But These Skills Are Helping People Unlock Better Pay
According to Nehal Mota, Co-founder of Finnovate Financial Services, festive EMI schemes appeal to consumers who are already relying on borrowing to sustain their lifestyles. The convenience of smaller instalments can make another purchase appear manageable, even when the household budget is already stretched.
One Festive Purchase Can Push EMIs To 40% Of Income
Consider a family earning Rs 1 lakh a month. It already pays Rs 25,000 towards existing EMIs and invests Rs 10,000 through a systematic investment plan (SIP).
Now, suppose the family buys a festive-season product that adds another EMI of Rs 15,000 a month.
Its total monthly EMI payments would rise to Rs 40,000. That means 40 per cent of its income would go towards loan repayments, compared with 25 per cent earlier.
Financial planners often use 40 per cent of monthly income as a broad upper limit for total EMI commitments, although the appropriate level depends on income stability, essential expenses and other financial obligations.
In this example, a single festive purchase takes the family to that threshold. Any unexpected expense, such as a medical bill, home repair or temporary loss of income, could make the budget harder to manage.
The bigger risk is that the family may start cutting other expenses to accommodate the new repayment. Savings and investments can then take a back seat.
Why Festive EMI Offers Can Be Misleading
The pressure is not necessarily coming from higher interest rates. Even if borrowing costs ease, consumers can end up paying more every month if they keep adding new loans.
Festive offers make this easier. Smaller instalments, quick approvals and low or zero-cost EMI promotions can make an expensive purchase appear affordable. But a low monthly payment does not automatically mean a good deal.
The total cost matters. Processing fees, the repayment period, the applicable interest rate and any conditions attached to a promotional offer can change the final amount a consumer pays.
Nehal Mota of Finnovate Financial Services stresses the importance of looking beyond the immediate affordability of a purchase. The real test is whether the household can meet the repayment without compromising its financial security.
"A borrower should also consider existing commitments before taking on another EMI. A household that is already repaying a home loan, car loan and personal loan has less room to absorb another fixed monthly expense," Mota told NDTV.
Three Ways To Protect Your Savings This Festive Season
- Set a festive budget before shopping: Decide how much you can spend before discounts and promotional offers start influencing your decisions. Account for existing EMIs, insurance premiums, essential expenses and regular investments first. The amount left over is your actual festive budget.
- Compare the total borrowing cost, not just the EMI: Check the interest rate, processing charges, tenure and other conditions before accepting an offer. A smaller instalment may simply mean a longer repayment period. Do not commit to a purchase until you know how much it will cost overall.
- Protect your emergency fund: Ideally, maintain an emergency fund covering three to six months of essential expenses. Keep this money separate from your shopping budget. Using it to pay for a festive purchase can leave you exposed when a genuine emergency strikes.
Should You Stop Your SIP To Pay For Festive Shopping?
When money gets tight, reducing discretionary spending should generally come before stopping investments. A premium gadget, an upgrade or an additional festive purchase can often wait. Regular investments, meanwhile, help build wealth over time through the power of compounding.
Stopping a SIP can interrupt that process. There is also a practical risk: people who pause investments may not resume them at the same amount later.
That does not mean a SIP should continue at any cost. If essential household expenses and existing loan repayments cannot be met, revisiting the investment amount may be necessary. Any reduction should be based on the household's actual cash flow, with a plan to restore contributions when finances improve.
The key is to avoid treating investments as the first source of money for every additional expense.