The EMI Trap: How Easy Loans are Choking Indian Roads

‘Do not save what is left after spending; instead spend what is left after saving.’
– Warren Buffett

The population of two wheelers and cars jumped many folds in the last few decades.

In 1970, around five decades back there were approximately 11.8 million or 1.2 crore private vehicles on Indian roads.

In 2024 The country has more than 21 crore two-wheelers and over 7 crore four-wheelers.
Obviously, there will be traffic overload today.

Aspiring India

‘Debt gives you the ability to look like you’re winning when you’re not’– Dave Ramsey

When you see brilliantly chiselled car models on flat, hi resolution screen of your TV, with fifty shades available to cater for all- your jaw drops and tongue hangs out of your mouth; watering- ‘yes, I want this’ you scream. Owning a car has always been a dream of every Indian, especially for the large middle-class segment of the population which is swelling by the hour. With increase in per capita income, friendly pro automobile policy of government, and easy availability of cars to cater to the needs of different income segment accompanied by easy finance schemes in India; the number of cars running on Indian roads have increased manifold in last decade. The attractive marketing strategies adopted by various car companies have been very successful in raising the aspirations of Indians even those not so aspiring ones, now every Indian want to own a car the very moment they can afford one. Sometimes people overstretch getting down on their knees not being able to control their emotions to buy a glittering car. There are brands entering by the day and companies are running out of names- struggling to find a good name for a new model. You have Venues, Lauras, Auras, Swifts, compass, Comet, Creta, Camery, Triber, Citroen Aircross, Brio, Jazz, Besalt, Sonet, Selto, Caren, Kushaq, Slavia, Enyaq, Octavia…. Phew! The list seems endless.

You ring up one car dealer for a test drive and your chased till you take one.

You don’t buy a car, they say you buy ‘an experience’ another marketing funda. They really give you free stuff- actually it is inbuilt in the costing. They following are the order of he day.

Additional top ups like free mats, Preventative Maintenance Service (PMS) Vouchers, full tank of fuel, an extra set of keys, Mud flaps, Rain guards, Reverse sensor, Car Care Kit, Roadside assistance and the works.

As if this not enough they chip in Extended warranty, Paint protection, Bumper sensors, front and Rear-view camera, Premium sound system Leather seats et al.

You may not need half of these but are sure to sway many to take a quick call- after all we are humans, no?

The real cause of this menace- affordability or virtual buying capability

Loans have outsmarted and out-maneuvered the construction of infrastructure’. Money market opened the flood gates of moolah to the over aspiring middle class in India. They are now buying crazy. For the traffic, on the roads, it is like pumping millions of gallons of water into a two-inch diameter pipe. Yes, it will burst for sure.

More and more Indians are purchasing cars on loans now with finance penetration for passenger vehicles increasing from 72-75 per cent in 2019 to 77-80 per cent in 2023, according to data, reviewed by Business Standard.

The availability of credit itself, with more banks coming in, the rise in rural sales with more NBFCs (non-banking financial companies) participating, the rise in the share of fleet sales, the drop-in interest rates, and banks coming out with tailor-made products for car-buyers — all have contributed to this growth. 

‘Drive out now and pay later’- will anyone be insane not to do it? With very little down payment, a smart well-dressed girl or boy in front of a shinning car offering you a cup of steaming coffee for free and just a form to sign off for long term EMI sometimes at very low interest rate is a deal clincher one cannot resist. A seasoned guy or a rookie both will go for it hook line and sinker.

This EMI – ‘Easy Money It-is’- looks so cool and attractive- why not. You eat now but pay later makes sense.
There are bad loans too when people default payments- they bit more than they could chew. This is not a cause of alarm as Indian economy is not only stable but booming.

Loan Melas and carnivals

It has become an organized affair- you have more foot fall at loan melas than job melas- and there are no jobs bro!
When rookies get a job at an IT company, many banks put up a ‘loan stall’ at the entrance to welcome- new industry avatars, they their pay package and can easily convince them to by a moveable asset. For a 22-year-old this is a brain bazooka. Now his signature has great value which no one cared for when he was in college! You have arrived is the heady feeling.

‘Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.’ – Albert Einstein

Fiscal indiscipline

The most dreaded disease for our youth is lack of financial discipline. For most teenagers, spending has become a second nature. With endless wants, spending avenues and peer pressure, fiscal discipline is an alien subject. They think they know everything, actually they lack maturity and patience. They want everything today and now and neither bother about parental advice or learn financial prudence from their seniors in the work place.

Even the givers default

Banks giving loans left right and centre sometimes do cut a sorry figure. They need to check the paying capacity of he person taking the loan. The quote below says so.

‘Don't reward bad behaviour. It is one of the first rules of parenting. During the financial cataclysm of 2008, we said it differently. When we bailed out banks that had created their own misfortune, we called it a 'moral hazard,' because the bailout absolved the bank's bad acts and created an incentive for it to make the same bad loans again’ - Eliot Spitzer, American politician and attorney