Written By Darshan M (Grade 12)
The Equated Monthly Installment (EMI) system has evolved into an influential mechanism for financing consumer purchases in India, allowing individuals to purchase high-value goods and services by distributing costs into manageable monthly payments. From smartphones and electronics to home appliances and even vacations, nearly every significant expenditure today can be facilitated through EMIs. While this system has undeniably enhanced the purchasing power of Indian consumers, it has also given rise to many financial and behavioural challenges. The pervasive availability and acceptance of EMIs have transformed spending habits and financial discipline, leading to a culture characterised by easy borrowing and impulsive purchasing.
One of the most significant drawbacks of the EMI system is its influence on impulsive spending. Traditionally, acquiring high-value items needed financial planning, budgeting, and saving. However, the advent of EMIs has transformed this landscape, allowing consumers to make substantial purchases without the need to wait until they have accrued adequate funds. Now, whether it’s a smartphone, television, or furniture, nearly every major acquisition can be divided into manageable monthly payments, thereby diminishing the psychological barriers that once accompanied substantial expenditures.
The rise of the ‘buy now, pay later’ phenomenon has created a good environment for consumers who make spontaneous purchases, often overlooking the potential long-term consequences on their financial well-being. This trend is especially noticeable among younger individuals, who are influenced by the latest gadgets, fashionable apparel, and unforgettable travel adventures. In their enthusiasm, they frequently neglect to evaluate whether these acquisitions are genuinely necessary or financially sustainable over time.
While EMIs undoubtedly enhance accessibility to higher-priced items, they also carry the risk of pushing consumers into a cycle of debt. Many individuals overlook the long-term financial burden that arises from paying multiple EMIs, resulting in a substantial portion of their income being committed to monthly payments. Consider an individual who opts for EMIs on a smartphone, a laptop, a washing machine, and a vacation simultaneously. Each payment may appear manageable when viewed in isolation, yet the aggregate impact can become quite burdensome and may face serious cash flow challenges. As time progresses, such spending habits can lead to an increase in debt, especially when consumers struggle to meet their payment deadlines. Failing to make timely EMI payments may incur high interest rates, late fees, and penalties, creating a problem for borrowers to settle their loans. This cycle of indebtedness not only spoils financial stability but also their mental health.
Historically, Indian households have been celebrated for their deep-rooted culture of savings, where individuals practiced financial discipline, often delaying the purchase of luxuries until they could truly afford them. However, the emergence of the EMI system has significantly altered this tradition. Consequently, many consumers are increasingly favouring expenditure over saving, leading to a depletion of their financial reserves to purchase non-essential possessions. The transition away from prioritising savings carries profound implications for long-term financial stability, particularly during challenging times. In the absence of a substantial savings buffer, individuals find themselves increasingly exposed to unforeseen expenses, whether they be medical emergencies, job losses, or economic recessions.
The EMI system frequently conceals high interest rates and undisclosed fees that may not be immediately obvious to consumers. Although zero-interest EMIs appear enticing at first glance, they frequently carry hidden expenses, including processing fees, GST, or inflated product prices that are later included in the total cost. As a result, buyers often find themselves paying significantly more than the true value of the product throughout the installment period.
Consider a consumer who chooses a 24-month EMI plan for a premium smartphone. This decision could result in an additional expenditure of 20–30% above the original price, attributable to interest and processing fees. These costs can accumulate substantially, particularly for those managing multiple EMIs concurrently. The confusion surrounding the EMI framework frequently misleads the true financial burden from consumers, leading to potential mismanagement and the risk of incurring unnecessary debt.
The EMI system has unintentionally cultivated a culture of materialism among Indian consumers, transforming luxury goods into a marker of status and achievement. This accessibility to purchasing through EMI has given rise to a common mindset, which compels individuals to acquire the latest gadgets, automobiles, and luxury items to uphold their social prestige. This preoccupation with material wealth has shifted our focus away from truly significant investments in areas such as education, health, and long-term financial stability. Rather than prioritising what truly matters, many individuals are spending their hard-earned resources on lifestyles beyond their means, resulting in a cycle of dissatisfaction, stress, and an enduring feeling of inadequacy.
A frequently underestimated consequence of the EMI system is its influence on an individual’s credit score. Regularly choosing EMIs and neglecting to make timely payments can adversely affect one’s credit rating. A diminished credit score not only hinders the ability to obtain future loans but also restricts access to more advantageous interest rates, ultimately leading to high borrowing costs. Even individuals who diligently manage their EMI payments may discover that their credit score suffers due to the sheer number of credit accounts they have opened. A multitude of EMIs can increase the credit utilisation ratio, which financial institutions may interpret as a heightened risk. This perception could obstruct access to vital credit options in the future, such as home loans or education loans.
Managing multiple EMIs can significantly affect an individual’s mental health. The tension of making monthly payments often results in stress, anxiety, and feelings of financial instability, particularly for those who have taken on more EMIs than they can’t handle. The weight of debt can negatively influence mental well-being. Additionally, the tendency to borrow for various desires can change a person’s perspective on money and financial responsibility, building an illusion of affordability. This can lead to poor financial practices, inadequate budgeting, and difficulty in differentiating between needs and wants, ultimately hindering long-term financial objectives like retirement savings, investments, or buying a home.
The EMI system makes it easier for people to buy expensive things, but it also brings some problems that can hurt people’s money. Because it’s so easy to get loans, many people end up spending too much, going into debt, and saving less. This can make them want more stuff right away instead of thinking about their future and saving for it. To stop this cycle, people need to learn more about managing their money, be careful about how they spend, and think about whether they really need something before they buy it with a loan. It’s important to check if they can afford it and if it helps them reach their money goals in the long run.
Banks and people who make rules need to help everyone understand how to borrow money wisely. They should educate us about how much borrowing really costs and encourage saving money. This can help avoid problems with paying back loans in India. The most important thing is to find a good balance between getting what we want right now and being careful with our money so that we can have a stable and happy future.
Featured Image Courtesy – KreditBee
