‘EMIs can be an enabler when…’: How Gen Z can borrow smart and dodge debt traps

Gen Z, typically including those born between 1997 and 2012, is rewriting the rules of borrowing. Equated Monthly Instalments (EMIs) are at the heart of this transformation. Digital-savvy and credit-confident, Gen Z is embracing financial products like never before, fuelled by the rise of Buy Now Pay Later (BNPL) schemes, instant loans, and app-based lending.

According to the latest Credit Market Indicator report by TransUnion CIBIL, 41% of all first-time borrowers in India now belong to Gen Z. These digital natives are increasingly using EMIs to manage spending on gadgets, education, wellness, and lifestyle, often with just a few taps on their phones.

But easy credit can quickly spiral if not used wisely. “Young borrowers must learn to balance aspirations with accountability,” says Rishabh Goel, co-founder and CEO of Credgenics. While EMIs make big-ticket purchases more accessible, reckless usage can lead to defaults, debt traps, and long-term damage to credit health. "Without proper planning, juggling multiple EMIs, especially on short-term or high-interest loans, can lead to missed payments and hurt credit scores in the long run," said Goel.

To borrow smart and stay financially healthy, Goel suggested five practical tips Gen Z should follow:

Differentiate needs from wants: Use EMIs for long-term value items like laptops for education or skill-based courses, not impulsive shopping or lifestyle splurges.

Track your EMI-to-income ratio: Ideally, your total monthly EMI commitments should not exceed 30–40% of your income. This ensures there’s room for savings and emergencies.

Set up auto-debit and reminders: Missed payments can hurt your credit score. Automating payments and setting alerts ensures timely repayment with minimal effort.

Don’t stack too many EMIs: Avoid the temptation to take multiple loans at once. Clear existing dues before signing up for new ones.

Read the fine print: Understand the full cost of borrowing, including hidden charges, processing fees, and penalties. What looks like a small EMI can become expensive over time.

With youth driving the next wave of consumer spending, building disciplined credit habits early on is essential. Goel said, "EMIs can be an enabler, not a burden when used strategically."