The Indian economy and consumer behaviour are highly influenced by seasonality, whether it is the changing weather patterns or the festivals. Festivities not only lift spirits but also drive higher consumer spending, which in turn fuels lending activity across the country.
This year the government’s GST cuts provided an additional push to the festive season, resulting in a double bonanza for consumers. Attractive festive discounts were offered by the retailer while also passing on the benefits of reduced tax rates. This has resulted in price drops across major categories such as consumer durables, home appliances, electronics and vehicles, as well as other lifestyle products. This not only boosted affordability but also encouraged consumers to make purchases they may have postponed otherwise.
Over the years, the way people shop has evolved dramatically. Festive shopping is no longer limited to visiting traditional retail shops and marketplaces. In most instances, consumers today do their purchasing digitally, driven by the availability of e-commerce sites, digital payment options and instant credit options.
Consumers today prefer taking small-ticket loans for consumer goods, fashion accessories, and gifts, while many opt for larger loans to finance aspirational purchases such as cars or two-wheelers. The “buy now, pay later” and increased credit card limits have resulted in many options that empower consumers to make bigger purchases more conveniently.
Credit as an enabler of aspirations
Credit, while inherently viewed negatively, is an essential financial tool today which plays an important role in driving consumption and facilitating aspirations. Credit facilitates consumers to buy premium or aspirational products that might otherwise be out of reach.
For many, the festive season is the time to upgrade their home, invest in better expensive electronics, or gift loved ones something special. Availability of credit is important as it facilitates consumers to take advantage of the limited-period offers and festive discounts, even when they don’t have sufficient liquidity at hand.
This increase in credit uptake due to the festive surge contributes positively to economic growth. The increased consumer spending drives higher production activities, fuels increased retail sales, results in more demand for logistics, and creates employment opportunities across multiple sectors. Festivals in India are an opportunity for growth to financial institutions and digital lenders, with increased demand for credit cards, personal loans, and consumer finance products.
When celebration turns into a credit burden
While credit is an enabler, it can also be detrimental if not managed well. Consumers need to be aware of the long-term costs associated with deferred payments. While the purchase may seem discounted at the point of sale, EMI-based purchases come with interest rates that add up over time. The real cost of the purchase may exceed the original prices after adding the total interest payments incurred after 12, 18, or 24 months of EMI facility.
Similarly, converting credit card dues into EMIs or just making payment of the minimum amount due each month will significantly impact your credit history. Interest rates on unpaid credit card balances are among the highest in the lending products, and late payments can result in penalties, compounding interest, and even negatively impact credit history as well as credit scores. In the long run, this can reduce access to affordable credit in the future.
Thus, the festive credit trap that consumers may fall for is spending using credit without realising the real cost of borrowing. And so, what begins as an act of celebration can slowly turn into a burden of repayment.
A balanced approach to festive finance
It is important for consumers to remember to judiciously use the credit facilities available to them. Credit is a tool of empowerment, if used responsibly, but when used irresponsibly, it can impact financial stability.
Here’s what consumers should remember to stay financially healthy during the festive season:
- Do not just look at the price tag – calculate the total cost of your purchase, including interest, processing fees, and taxes, before finalising a loan or EMI plan.
- Always pay your credit card dues in full. Carrying unpaid dues from one billing cycle to the next can result in heavy interest charges and impact the credit score.
- Only opt for loans or EMI plans when the future repayments fit within your monthly income.
- Avoid taking multiple loans at once.
- Check your credit report regularly.
- Plan and allocate your festive budget so that tempting deals do not result in overspending beyond your means.
The takeaway: Celebrate smart
Festivals are for celebration, indulgence, and generosity, but they also call for financial awareness. While credit plays a crucial role in fuelling festive consumption and enables consumers to fulfil their aspirations, it is important to remember that credit is borrowed money, not additional income.
The discounts of today should not turn into the debts of tomorrow. Celebrations can be joyous only when they bring lasting happiness, not pending bills. Smart financial planning ensures that consumers’ festive enthusiasm lasts long after the season has passed without being a debt trap.
Disclaimer: The information provided in this article is for informational purposes only and does not constitute financial, legal, or professional advice. While every effort has been made to ensure accuracy, readers should verify details independently and consult relevant professionals before making financial decisions. The views expressed are based on current industry trends and regulatory frameworks, which may change over time. Neither the author nor the publisher is responsible for any decisions based on this content.
Sachin Seth, Chairman CRIF High Mark and Regional MD CRIF India & South Asia
About the Author
