The credit card trap: Can festive EMI offers erode your long-term wealth?

Each year, the festive season in India is marked not just by celebrations but also by a surge in consumer spending. Credit card companies, banks, NBFCs, and major e-commerce platforms flood the market with enticing EMI offers on electronics, gadgets, travel, and luxury goods. Luring consumers with “no-cost EMI”, cashback, and instant discounts, these schemes appear to make indulgence affordable—but often mask deeper long-term debt risks.

In September–October 2025, most banks, NBFCs, and e-commerce giants rolled out aggressive EMI schemes across platforms and retail stores. Smartphones—where 70% of iPhone sales were financed through EMIs—remained the biggest draw, followed by appliances and leisure travel. Instant EMI conversion tools and UPI-linked payments further eased access, making it especially appealing to younger, digitally active consumers.

At first glance, the offers appear irresistible: zero or low processing fees, flexible tenures (3–24 months), and the comforting claim of “no extra cost”. But hidden beneath are effective annualised interest rates ranging from 42% to 56% on credit cards, along with late payment penalties and compounding charges that can snowball into a financial trap.

The credit card-EMI nexus in India

By late 2024, UPI-linked credit card payments for EMIs had already crossed ₹63,825 crore. Total credit card dues stood at a record ₹2.9 lakh crore, reflecting both the rise of “buy now, pay later” culture and festive-driven demand.

India’s credit card base has expanded to 10.5 crore active cards by 2025, with usage peaking during festive months. EMIs have turned discretionary purchases into manageable outflows, encouraging higher borrowing.

But this affordability illusion is taking a toll. EMI repayments now consume around 33% of monthly salaries for digitally active Indians. Gen Z—41% of first-time borrowers—often stack multiple EMIs, not just for gadgets but also for weddings and travel.

The result is a surge in defaults. Credit card delinquencies rose 28% year-on-year to ₹6,742 crore in 2024, much of it linked to EMI-driven consumption by young borrowers lacking financial literacy. Even among higher-income groups, up to 45% of monthly income is now committed to EMIs. Meanwhile, India’s household savings rate has plunged to just 5.3% of GDP in 2024—the lowest in nearly half a century.

The long-term wealth erosion effect

The most insidious cost of EMIs lies not in defaults but in the opportunity loss of foregone investments. Every rupee spent on high-cost repayments is a rupee not invested in wealth-creating assets.

Consider a simple illustration: ₹10,000 spent on a smartphone via EMI at an effective annualised rate of 40% could mean ₹4,000 lost annually in charges. Had that same amount been invested in an equity mutual fund at 12% CAGR, its value could compound to over ₹50,000 in 15 years. Instead, the EMI route leaves the consumer with a depreciating gadget and no long-term asset.

When 30–40% of household income is tied up in EMIs, critical goals—home ownership, children’s education, retirement—get postponed or underfunded. The compounding effect of missed savings over decades results in a sizeable wealth deficit.

This is particularly dangerous in India, where pensions and social security are minimal. Younger earners who consistently divert savings into EMIs may find themselves with inadequate retirement buffers and heightened vulnerability later in life.

In short, the festive EMI trap doesn’t just stretch monthly budgets—it undermines the foundation of long-term wealth creation.

Lessons from developed economies

India’s present trajectory has parallels in developed economies, offering cautionary lessons.

In the US, UK, and much of Europe, easy access to credit pushed household debt to 80–90% of GDP. Over half of households now live paycheck to paycheck, with much of their income servicing debt instead of creating savings or investments.

The 2008 financial crisis exposed how household over-leverage could destabilise entire banking systems. Even afterwards, research showed that a 1% rise in household debt-to-GDP could shave 0.1 percentage point off long-term economic growth.

The same trends—lifestyle borrowing, aspirational consumption, and a “buy now, pay later” mindset—are emerging in India’s festive culture. While India’s household debt-to-GDP is still lower than in advanced markets, the pace of EMI-driven growth suggests a rising risk of a similar debt overhang.

The bottom line

Festive EMI offers have democratized consumption, allowing millions to access aspirational products without upfront strain. But this affordability illusion comes at a hidden cost. By turning indulgence into long-term liabilities, EMIs trap households in debt cycles that crowd out savings, delay wealth creation, and weaken resilience.

The greatest risk is not default—it is the foregone compounding of investments that could otherwise secure future prosperity. Today’s festive splurges, if unchecked, may well become tomorrow’s retirement shortfalls.

India now stands at a crossroads. Lessons from developed economies highlight the perils of unchecked consumer credit expansion. Unless financial literacy, regulation, and responsible lending are strengthened, the festive season could sow the seeds of a prolonged credit card trap—eroding wealth and financial security for millions of Indian households.

The author is Dr. Jayatu Sen Chaudhury, Professor, Finance & Analytics, Great Lakes Institute of Management, Gurgaon. Views are personal.