The New Landscape of Debt
For many young Indians, credit is no longer a big step reserved for a home or car loan. It’s an everyday tool. A recent TransUnion CIBIL report highlighted a major shift: seven out of ten Gen Z consumers have already used some form of credit, like Buy
Now Pay Later (BNPL) or small digital loans, before even getting their first credit card. This is a stark contrast to millennials, where the figure was much lower. This ease of access, combined with the social pressure to keep up with the latest trends, means many are entering the festive sales already managing multiple lines of credit. The danger is that these small, seemingly manageable payments can quickly snowball into significant debt.
Trap 1: The 'No-Cost EMI' Illusion
One of the most effective hooks during sale season is the “No-Cost EMI.” It feels like a free way to spread out payments for that new phone or laptop. However, it’s not truly free. The Reserve Bank of India has clarified that the concept of zero-percent interest is non-existent. Here’s how it works: the retailer provides an upfront discount on the product that is equal to the interest the bank will charge you. So, while it appears you’re paying the original price, you're hit with hidden charges. You still have to pay 18% GST on the interest component, and most banks also charge a non-refundable processing fee. In many cases, by choosing a No-Cost EMI, you also forfeit other instant discounts available for upfront payment, making the product more expensive than if you had paid in full.
Trap 2: The Buy Now, Pay Later Spiral
Buy Now, Pay Later (BNPL) services have exploded in popularity, offering instant gratification at checkout. While convenient, they are a double-edged sword. The ease of use can encourage impulse buying, leading consumers to spend more than they can actually afford. Though many BNPL services advertise zero interest, the penalties for missing a payment can be severe, with some annual interest rates climbing as high as 30-40%. What many young users don't realise is that most BNPL providers now report your repayment history to credit bureaus like CIBIL. This means any missed or late payments can directly damage your credit score, affecting your ability to get larger loans for a car or home in the future.
Every Click Can Impact Your CIBIL Score
The festive sales don't just tempt you to spend; they also tempt you with numerous co-branded credit card offers promising extra discounts. Applying for multiple credit cards or loans in a short period triggers what are known as “hard inquiries” on your credit report. Each hard inquiry can temporarily lower your credit score by a few points, as lenders may see this activity as a sign of financial distress. Furthermore, running up high balances on your cards during a shopping spree increases your credit utilisation ratio—the percentage of your total available credit that you are using. Experts advise keeping this ratio below 30%. Maxing out your cards, even if you plan to pay it off, can be a red flag to lenders and negatively impact your score.
A Smart Shopper's Financial Checklist
Navigating the sale season without falling into a debt trap requires a clear plan. Here are five practical steps to protect your finances: 1. Create a Strict Budget: Before the sales even begin, decide exactly what you need and how much you are willing to spend. Treat your credit card like a payment tool, not extra income. 2. Verify the Discounts: Sale prices are often based on inflated MRPs. Use price-tracking websites or browser extensions to check a product's price history to see if the deal is genuine. 3. Aim to Pay in Full: Always plan to pay your credit card bill in full by the due date. Paying only the minimum amount due is the fastest way to fall into a revolving debt cycle with high interest charges. 4. Read the Fine Print: Before you click “confirm” on any EMI or BNPL offer, understand the processing fees, GST implications, and late payment penalties. 5. Limit Credit Applications: Resist the urge to apply for every tempting credit card offer. Space out your credit applications to avoid multiple hard inquiries on your report in a short time.
