Is buying a Rs 1 lakh iPhone on EMI a bad idea? Here’s the math you should know
Published by India Today
Abhishek Kumar's role: Quoted
Abhishek Kumar cautioned that buying depreciating gadgets with future income is a worrying trend. He suggested keeping total debt payments below 40 per cent of income, holding six months of EMIs and expenses as a buffer, and weighing hidden costs.
What Abhishek Kumar said
Is it a problem that so many people now buy expensive phones on EMI?
I find this trend largely worrying, because it uses future earnings to pay for things that lose their value quickly. There is an exception: if a phone or a computer helps you earn your living or build your skills, a reasonable amount of spending on it can be justified. But it should never cut into your ability to save or invest, or leave you in long-term debt for a short-term want.
How much of my income can go towards EMIs before it becomes risky?
Before adding a new loan, work out your total debt-to-income ratio and check that, with the new instalment added, it remains under 40%. As a rule I prefer total debt repayments within 30% of gross monthly income; above 40% is risky, and above 50% often means a debt trap if your income stops. Also keep an emergency fund that covers at least six months of all your EMIs plus other expenses, so a crisis does not lead to a default.
How can I tell whether I can really afford a phone costing over ₹1 lakh?
First, the EMI must not eat into the 20% of income you should be saving for important goals. For example, a ₹1,34,900 phone on a 12-month no-cost EMI works out to about ₹11,242 a month, which is comfortable only at a net monthly income of ₹1 lakh or more. Two simple tests help: the phone should cost no more than one month's net salary, and you should have enough spare cash to buy two of them without touching your emergency savings.
What mistakes do people make when buying gadgets on EMI?
The biggest mistake I see is ignoring the opportunity cost. The same money, put into an asset that appreciates rather than a gadget that depreciates, could have grown into real wealth over time. People also forget the hidden costs of buying on instalments: the upfront discount they give up, processing fees, and the effect the loan has on how much they can borrow later for essential needs.
In our words, from what he said in the piece. General information, not personal advice.
More of Abhishek's views on debt and loans
The article looks at buying an expensive smartphone on EMI. It explains how easy instalments can hide the real cost for people already paying other loans, and sets out ways to test affordability, including debt-to-income limits, an emergency fund and simple rules of thumb.
Publisher source
Is buying a Rs 1 lakh iPhone on EMI a bad idea? Here’s the math you should know