Expensive Loans: ₹18,000 “Penalty” Every Year – Are You Ready for This Debt Trap?

Chartered Accountant Nitin Kaushik has issued a crucial warning for investors: before thinking about investments, prioritize paying off high-interest loans from Non-Banking Financial Companies (NBFCs). According to Kaushik, loans with interest rates of 16–18% quietly erode your wealth, while average long-term investments generate only 12–13% returns. Paying off debt, he says, is equivalent to earning a guaranteed return.

In a post on social media platform X, Kaushik emphasized that financial freedom does not begin with investing in mutual funds or stocks. Instead, it starts with eliminating the “wrong type of debt.” He specifically pointed out NBFC loans with high-interest rates as the silent killers of wealth.

The Hidden Cost of High-Interest Loans
Kaushik explained with an example: “For every ₹1 lakh borrowed at 18% interest, you end up paying around ₹18,000 annually just as interest. This is not leverage—it’s a leak in your finances.”

High-interest loans may seem manageable initially, but over time, monthly EMIs can become a major obstacle to building wealth. Kaushik warned that borrowers often underestimate the long-term impact of expensive debt. While most long-term investments like mutual funds or index funds yield 12–13% annually, loans with higher interest rates effectively make you lose money instead of grow it.

Emotional Toll of Debt
Kaushik also highlighted the psychological impact of being trapped in debt. Persistent liabilities can disrupt mental peace, forcing people to focus on short-term needs rather than long-term planning. Many borrowers stop even checking their bank balances, knowing EMIs will continue to drain their accounts.

He further pointed out that NBFCs themselves are cleaning up their balance sheets, writing off thousands of crores in bad loans. “If financial institutions are clearing their debt, the question is—are you?” he asked.

Why Reducing Expensive Debt is Crucial
Kaushik believes that financial discipline begins not with higher income but with cutting down costly loans, especially those taken for depreciating assets. He advised investors to pause aggressive investment plans and focus first on paying off loans with interest rates higher than their earnings.

“Paying off an EMI early is like earning a guaranteed return,” Kaushik said. “Saving 18% interest is equivalent to earning an 18% tax-free return.” Once high-interest debt is cleared, the same EMI amount can be redirected toward equity, real estate, or long-term financial goals, transforming financial survival into a strategic wealth-building plan.

Kaushik concluded, “True wealth is not built by chasing the next multi-bagger investment. It is created by cutting out what quietly destroys your growth.”