Diwali spending: 5 ways to manage EMIs and avoid a debt trap

Easy credit options during festive seasons make it tempting to pile up EMIs, risking household budgets and long-term savings. Experts advise separating planned purchases from impulse buys, evaluating total borrowing costs, and monitoring combined monthly obligations.

Diwali spending often includes purchases such as smartphones, appliances, clothes and holidays. With instant personal loans, pre-approved credit limits and buy now, pay later (BNPL) options making credit easily accessible, consumers can spread these expenses across monthly instalments.

However, multiple purchases on EMI can add to existing financial commitments and put pressure on household budgets.

The key is to assess the affordability and total cost of borrowing before opting for credit.

Here are five things to consider before taking a loan or financing festive purchases.

Separate planned purchases from impulse buys

Festive discounts and instant credit approvals can encourage unplanned spending. Before making a purchase, assess whether it is necessary, whether it can be postponed and whether it fits within your budget.

Shruti Aggarwal, Co-Founder and Director of Stashfin, a digital financial services and fintech platform, said consumers should distinguish between planned purchases and impulse buying. Borrowers should consider their existing financial commitments, monthly cash flows and ability to service EMIs before using a pre-approved credit limit.

Compare the total cost of borrowing

An attractive interest rate or a no-cost EMI offer does not necessarily mean the financing is inexpensive. Check processing fees, repayment tenure, foreclosure charges and other applicable costs before accepting an offer.

Aggarwal said consumers should compare the overall value proposition, including discounts on the product and financing, and the flexibility to repay early. A loan with a lower interest rate may cost more if it carries higher fees or restrictive repayment terms.

Calculate the combined EMI burden

Multiple small instalments can add up quickly. A smartphone EMI, a holiday loan and a consumer durable purchase may individually appear affordable but together leave less money for household expenses and savings.

Vibhore Goyal, Founder and CEO of OneBanc, an Indian neobank and artificial intelligence-enabled financial technology platform, illustrated this through the example of a 29-year-old analyst earning ₹75,000 a month. After financing a smartphone, a holiday and a gym membership, the individual found that ₹39,000 had been spent within five days of payday, while savings had fallen by 80%.

The example highlights the need to assess all existing EMIs before taking on another repayment obligation.

Assess repayment capacity, not just loan eligibility

An instant approval or pre-approved limit indicates access to credit, not necessarily the ability to repay it comfortably. Account for essential expenses, existing EMIs, insurance premiums and other regular commitments before deciding how much additional borrowing is manageable.

Goyal said connected, AI-led payroll and benefits platforms can help employees understand their repayment capacity by using income and financial information before they borrow.

Protect savings and long-term financial goals

Festive purchases may be made in a few days, but their EMIs can continue for months. Check whether the additional repayment will affect emergency savings, regular investments or other financial priorities.

Aggarwal said consumers should use digital lending to meet immediate requirements while keeping future financial commitments manageable. Borrowing decisions should be based on affordability rather than the convenience of instant credit.

A spending plan, a comparison of borrowing costs and an assessment of repayment capacity can help consumers manage festive expenses without putting unnecessary pressure on their finances.