Very often we come across products and offers that are too tempting for our pockets. During those times logic usually takes a backseat, at least for few seconds, as desire to own the product seeps in. The question of ‘need’ hardly matters then as ‘want’ takes over our decision making ability. Such a desire for a moment faces a risk of extinction when we face the harsh reality of our financial health until we hear the product screaming at us, “don’t worry when EMI is here

Yes, don’t worry when EMI is here…

So what exactly is this EMI and why should one be aware of its existence?

In layman terms, Equated Monthly Instalments, abbreviated EMI, is an alternative form of payment that enables the consumer to purchase a commodity and also put it to usage almost immediately while committing to a regular payment of equal instalments for a period of time until the debt is settled with the lender. This option is usually availed by consumers who wish to purchase a commodity but whose financial health at the moment or in the near future looks tight.

EMI value is calculated taking into account three factors- the loan amount, the interest rate charged and finally the tenure for which the loan has been taken for.

Off late EMI has become a popular tool among Indians, especially for salaried employees; as a result, many Indians are now in deeper debt than before. This form of instant gratification and convenience during purchase has lured many into the chakravyugh of purchasing and earning to repay debts, with hardly any money left for saving or investing resulting in a situation of “WANTING TO GROW BUT UNABLE TO GROW.”

Nikhil Singhi

How EMI successfully accomplishes to fool us:

  • Although the option of EMI empowers one, for the time being, by increasing one’s purchasing power, it gives a false sense of security as eventually the person ends up paying more than the total cost of the commodity purchased. Immediate gain but long-term pain. This is true as each instalment includes- the principal amount, the interest amount and certain other hidden costs (such as the processing fee which is usually 1-2% of the loan amount charged by the bank).
  • EMI at 0% interest rate is the biggest gimmick. Nothing in this world comes for free, including water. Thinking that something as a loan could be acquired at a 0% interest rate is funny. Again, some hidden costs are included while calculating EMI.
  • taxation policy of India allows one to be exempted to the extent of the interest amount paid. A majority of Indians unaware about the consequences, enter into such alternatives (such as EMI, which is both easy and convenient) in order to reap tax benefits and unintentionally enter into the vicious cycle of debt trap.

Nikhil Singhi

Mischief by EMI:

  • In the long run, selecting the EMI option causes financial strain to an individual. With changing times, desires and wants also changes but the habit of selecting EMI option even if one is capable of making payment, grows. The output of continuance of such a habit is continuous decay of the financial health of an individual as the poison of debt slowly but surely deepens.
  • EMI also affects one’s credit score (it’s a summary of one’s past and present borrowings along with the repayment history) in turn affecting the ability of an individual to borrow.
  • In case of default in EMI payment, heavy penalties or strict legal action or even repossession of the commodity purchased can be expected.
So what should I do? You can adopt the following:

  • Adopt minimalistic approach This encourages one to take a conscious decision before purchasing anything by logically reasoning if one really needs that commodity.
  • Paying for a commodity in full at once will keep one in check of one’s expenditure and also enable one to spend responsibly.
  • Looking into the amortization table before taking a loan under EMI would give an idea about the monthly instalments due as well as the final amount to be paid. A prudent decision can be made thereafter.
  • Even if one engages into the EMI option, have a breathing space before choosing the same option while purchasing another commodity.


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