Festive Season Shopping on EMI? How Rising Interest Rates Could Put Your Monthly Budget Under Pressure
Festive sales can make it tempting to upgrade a smartphone, buy a new television or bring home other expensive appliances. Easy equated monthly instalments (EMIs) may reduce the immediate financial burden, but the commitment continues long after the celebrations end.
For households juggling regular expenses, existing loans and investments, an additional EMI can narrow the room for financial flexibility. The Reserve Bank of India's reported repo rate increase to 5.50% on 7 October 2026 adds another consideration for consumers weighing fresh borrowing.
Nehal Mota, Co-Founder of Finnovate Financial Services, cautions that consumers should consider the long-term implications of their festive purchases rather than concentrating only on the initial discount or monthly instalment.
A household may comfortably manage its existing repayments but find its budget stretched after adding even one or two new purchases. The pressure can become more noticeable when rent, school fees, insurance premiums and other essential costs rise or when an unexpected expense occurs.
Consider a family earning Rs 1 lakh a month. If it already pays Rs 25,000 towards existing loans and invests Rs 10,000 through systematic investment plans (SIPs), its finances are allocated across debt repayment, investments and regular living costs.
Suppose the family buys a television and a premium smartphone, taking on additional EMIs of Rs 15,000 a month. Its total monthly loan repayments would increase to Rs 40,000, equivalent to 40% of its income.
After paying the EMIs, the family would have Rs 60,000 left. Once its existing Rs 10,000 investment commitment is accounted for, Rs 50,000 would remain for household expenses and other financial priorities.
Although these figures may appear manageable on paper, the family would have less flexibility if someone lost their job, faced a medical emergency or needed to meet another unexpected expense.
Mota also points to a Finnovate survey of 941 respondents, which found that 56% relied on some form of debt to maintain their lifestyle, while one in 13 reported having unmanageable debt. These findings underline the importance of assessing borrowing habits before taking on further financial commitments.
The reported 25-basis-point increase to 5.50% on 7 October 2026 is therefore relevant to households considering fresh loans. A basis point represents one-hundredth of a percentage point, making 25 basis points equal to 0.25 percentage points.
However, borrowers should not assume that every existing EMI will increase immediately or by the same amount. The impact depends on the lender, the loan's interest-rate structure, contractual terms and the applicable rate-reset schedule.
For loans linked to an external benchmark, a change in the benchmark may affect the interest rate when the relevant reset takes place. Depending on the loan agreement, lenders may adjust the EMI, extend the repayment period or apply another permitted arrangement.
Consumers considering a new loan should compare the interest rate, processing charges, repayment period and total amount payable. A low advertised EMI can sometimes reflect a longer tenure rather than a genuinely cheaper borrowing option.
Emergency savings also deserve attention. Money set aside for unexpected expenses should not be treated as freely available spending money simply because it sits in a bank account.
Mota suggests that households approaching a debt-to-income ratio of 40% should exercise caution before taking on another EMI. This is a budgeting guideline, not a universal affordability limit. A family with a stable, high income and low living costs may have greater repayment capacity than one with the same ratio but substantial dependants and irregular earnings.
Buyers should also calculate the complete cost of a purchase. This includes interest, processing fees, any applicable charges and the potential loss of a cash discount when choosing an EMI offer. Comparing the final amount payable with the upfront price can help establish whether borrowing is worthwhile.
If the purchase leaves little money for essentials, emergency savings or investments, postponing it or selecting a less expensive model may be a more sensible option.
Mota advises consumers to prioritise financial resilience over the immediate appeal of a purchase. If a new EMI significantly reduces the money available for savings, investments or unexpected expenses, delaying the purchase could help protect longer-term financial stability.
Fixed deposits can offer predictable returns for investors who value certainty, subject to the applicable terms and conditions. Short-duration debt funds invest in debt securities with relatively shorter maturities, while target-maturity funds follow a defined maturity profile. However, debt funds are market-linked investments and do not offer guaranteed returns.
Floating-rate instruments may also attract attention because their interest payments can adjust in line with specified benchmarks or reference rates. The actual benefit depends on the instrument's structure, repricing frequency, credit quality and prevailing market conditions.
Gupte also identifies arbitrage funds as a potential option for parking money over a relatively short period. These funds seek to generate returns from price differences between related securities, but their returns are not assured and they may not be suitable for every investor or time horizon.
Within equities, Gupte favours businesses with strong cash positions and relatively low debt. His reasoning is that companies with substantial borrowing may face greater pressure when financing costs increase. Nevertheless, a company's debt level is only one factor to consider; valuations, earnings prospects, cash flow and business risks also matter.
Investors should assess these options against their financial goals, risk tolerance, liquidity requirements and investment horizon instead of making changes solely because of a single rate decision.
Instead, a review of existing financial commitments and investments may be more useful. Borrowers with floating-rate loans should check their agreements and prepare for any potential increase in repayment costs when the applicable rate resets.
People holding surplus cash can compare suitable savings products and fixed deposits, paying attention to liquidity, deposit terms and the interest rates available to them. Investors who have borrowed money to invest should be especially careful, as higher financing costs can magnify the risks of leveraged positions.
The right response will vary depending on an individual's financial circumstances. Someone saving for a near-term expense may need greater liquidity and lower volatility, while a long-term investor may be better served by maintaining a diversified portfolio aligned with their goals.
Ultimately, festive spending and long-term financial planning do not have to compete with each other. By setting a budget, understanding the full cost of borrowing and protecting essential savings, households can enjoy seasonal purchases without placing unnecessary pressure on their finances.
Disclaimer: This article is for informational purposes only and should not be considered financial, investment or borrowing advice. Interest rates, loan terms and investment returns may change. Readers should assess their individual financial circumstances and consult a qualified financial adviser before making financial decisions.
For households juggling regular expenses, existing loans and investments, an additional EMI can narrow the room for financial flexibility. The Reserve Bank of India's reported repo rate increase to 5.50% on 7 October 2026 adds another consideration for consumers weighing fresh borrowing.
Why festive purchases on EMI can strain household finances
Discounts and attractive monthly payment plans can make big-ticket purchases appear more affordable than they really are. However, an EMI represents a commitment against future income, reducing the money available for everyday spending, savings and investments.Nehal Mota, Co-Founder of Finnovate Financial Services, cautions that consumers should consider the long-term implications of their festive purchases rather than concentrating only on the initial discount or monthly instalment.
A household may comfortably manage its existing repayments but find its budget stretched after adding even one or two new purchases. The pressure can become more noticeable when rent, school fees, insurance premiums and other essential costs rise or when an unexpected expense occurs.
Consider a family earning Rs 1 lakh a month. If it already pays Rs 25,000 towards existing loans and invests Rs 10,000 through systematic investment plans (SIPs), its finances are allocated across debt repayment, investments and regular living costs.
Suppose the family buys a television and a premium smartphone, taking on additional EMIs of Rs 15,000 a month. Its total monthly loan repayments would increase to Rs 40,000, equivalent to 40% of its income.
After paying the EMIs, the family would have Rs 60,000 left. Once its existing Rs 10,000 investment commitment is accounted for, Rs 50,000 would remain for household expenses and other financial priorities.
Although these figures may appear manageable on paper, the family would have less flexibility if someone lost their job, faced a medical emergency or needed to meet another unexpected expense.
Mota also points to a Finnovate survey of 941 respondents, which found that 56% relied on some form of debt to maintain their lifestyle, while one in 13 reported having unmanageable debt. These findings underline the importance of assessing borrowing habits before taking on further financial commitments.
How the RBI repo rate hike could affect borrowers
The RBI's repo rate is the rate at which the central bank lends short-term funds to eligible banks against securities. Changes in this rate can influence borrowing costs across the financial system, although the effect on individual consumers depends on several factors.The reported 25-basis-point increase to 5.50% on 7 October 2026 is therefore relevant to households considering fresh loans. A basis point represents one-hundredth of a percentage point, making 25 basis points equal to 0.25 percentage points.
However, borrowers should not assume that every existing EMI will increase immediately or by the same amount. The impact depends on the lender, the loan's interest-rate structure, contractual terms and the applicable rate-reset schedule.
For loans linked to an external benchmark, a change in the benchmark may affect the interest rate when the relevant reset takes place. Depending on the loan agreement, lenders may adjust the EMI, extend the repayment period or apply another permitted arrangement.
Consumers considering a new loan should compare the interest rate, processing charges, repayment period and total amount payable. A low advertised EMI can sometimes reflect a longer tenure rather than a genuinely cheaper borrowing option.
Check EMI affordability before making festive purchases
Before signing up for a new instalment plan, households should calculate how much income remains after essential expenses and existing financial commitments. This assessment should include rent or housing costs, groceries, utilities, school fees, insurance premiums, existing EMIs and planned investments.Emergency savings also deserve attention. Money set aside for unexpected expenses should not be treated as freely available spending money simply because it sits in a bank account.
Mota suggests that households approaching a debt-to-income ratio of 40% should exercise caution before taking on another EMI. This is a budgeting guideline, not a universal affordability limit. A family with a stable, high income and low living costs may have greater repayment capacity than one with the same ratio but substantial dependants and irregular earnings.
Buyers should also calculate the complete cost of a purchase. This includes interest, processing fees, any applicable charges and the potential loss of a cash discount when choosing an EMI offer. Comparing the final amount payable with the upfront price can help establish whether borrowing is worthwhile.
If the purchase leaves little money for essentials, emergency savings or investments, postponing it or selecting a less expensive model may be a more sensible option.
Five ways to balance festive spending and financial goals
1. Set a realistic festive budget
Decide how much you can spend on gifts, travel, celebrations and household purchases without depending on future income or additional borrowing. A clear limit can help prevent attractive offers from encouraging unnecessary spending.2. Compare the total borrowing cost
Look beyond the advertised monthly instalment. Check the interest rate, processing fees, repayment tenure and total amount payable. Also establish whether an apparent no-cost EMI offer involves charges or the loss of an upfront discount.3. Review all existing EMIs together
Assess your total monthly debt repayments before adding a new commitment. Consider whether your income can comfortably support the combined payments if living costs rise or earnings fall temporarily.4. Protect emergency savings and investments
Avoid using your emergency fund to finance discretionary purchases. Continue regular, goal-based investments where your cash flow permits, while ensuring that near-term expenses and essential financial obligations remain covered.5. Avoid borrowing to fund a spending shortfall
Using credit cards or personal loans to finance festive purchases can make an already stretched budget more difficult to manage. If you cannot afford a product without taking on uncomfortable levels of debt, consider waiting until you have saved enough to buy it.Mota advises consumers to prioritise financial resilience over the immediate appeal of a purchase. If a new EMI significantly reduces the money available for savings, investments or unexpected expenses, delaying the purchase could help protect longer-term financial stability.
Which investments could benefit when interest rates rise?
A change in interest rates can also influence how investors assess different asset classes. Vedant Gupte, Co-Founder and CEO of Trackk, highlights fixed deposits, short-duration debt funds and target-maturity debt funds as options investors may wish to examine in a changing rate environment.Fixed deposits can offer predictable returns for investors who value certainty, subject to the applicable terms and conditions. Short-duration debt funds invest in debt securities with relatively shorter maturities, while target-maturity funds follow a defined maturity profile. However, debt funds are market-linked investments and do not offer guaranteed returns.
Floating-rate instruments may also attract attention because their interest payments can adjust in line with specified benchmarks or reference rates. The actual benefit depends on the instrument's structure, repricing frequency, credit quality and prevailing market conditions.
Gupte also identifies arbitrage funds as a potential option for parking money over a relatively short period. These funds seek to generate returns from price differences between related securities, but their returns are not assured and they may not be suitable for every investor or time horizon.
Within equities, Gupte favours businesses with strong cash positions and relatively low debt. His reasoning is that companies with substantial borrowing may face greater pressure when financing costs increase. Nevertheless, a company's debt level is only one factor to consider; valuations, earnings prospects, cash flow and business risks also matter.
Investors should assess these options against their financial goals, risk tolerance, liquidity requirements and investment horizon instead of making changes solely because of a single rate decision.
Should investors change their strategy after the repo rate increase?
A change in the repo rate does not automatically require investors to overhaul their portfolios. According to Gupte, those investing regularly for long-term goals should avoid making sudden decisions based on individual monetary policy announcements.Instead, a review of existing financial commitments and investments may be more useful. Borrowers with floating-rate loans should check their agreements and prepare for any potential increase in repayment costs when the applicable rate resets.
People holding surplus cash can compare suitable savings products and fixed deposits, paying attention to liquidity, deposit terms and the interest rates available to them. Investors who have borrowed money to invest should be especially careful, as higher financing costs can magnify the risks of leveraged positions.
The right response will vary depending on an individual's financial circumstances. Someone saving for a near-term expense may need greater liquidity and lower volatility, while a long-term investor may be better served by maintaining a diversified portfolio aligned with their goals.
Ultimately, festive spending and long-term financial planning do not have to compete with each other. By setting a budget, understanding the full cost of borrowing and protecting essential savings, households can enjoy seasonal purchases without placing unnecessary pressure on their finances.
Disclaimer: This article is for informational purposes only and should not be considered financial, investment or borrowing advice. Interest rates, loan terms and investment returns may change. Readers should assess their individual financial circumstances and consult a qualified financial adviser before making financial decisions.
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