Buying Smartphones on EMI, is it advisable?

May 08 , 2014

These days most of the phone manufacturers offer to sell phones under EMI schemes. They really sound attractive and seem to be a win-win situation for the consumer as well. Over and above the schemes are offered with zero percent interest.  There has been a surge in the sale of phones under such schemes.

How do these schemes actually work?

  • Purchase the smart device of your choice on your credit card. These schemes are available only if you hold credit cards of certain banks. Popular ones being ICICI, HDFC, Standard Chartered, SBI, Citibank etc.  
  • Convert the credit card payment to 18 EMI installments (depending on your choice of device). 
  • You can also pay a larger portion as down payment and convert the remaining to EMIs. 
  • Usually the EMIs can be paid for 3 months to a maximum of 18 months.
  • Every month your EMI will be charged to your credit card and you need to pay before due date.

Let us explore whether buying smart phones on EMI is appropriate or not.

Let us begin with the costs associated with it.

Though they appear that the scheme does not add up to the product cost but in fact it does increase the final cost of product. These in spite of interest free EMIs. Here are the charges:

  • The credit card providers charge anything between Rs 200 to Rs 5000 as the loan processing fee.
  • Apart from this in few cases you are charged 2% as convenience fee.
  • The seller also charges anything between 1% and 2% as processing fee.
  • If you miss out paying any EMI then you end up paying huge penalty.
  • In case you decide to foreclose your loan you need to pay foreclose fee.

So for example a Rs 40,000 device effectively costs you around Rs 44,000.

Now charges apart, the thought of buying something in EMI itself is not an advisable thing. If you buy products in EMI, a product that was not affordable to you earlier suddenly appears to be within your reach. What that essentially means you are spending more than what is affordable to you. You end up buying things beyond your means. That is something all of us need to avoid. If we strive to live a lifestyle beyond our means we will never be able to live a stable financial life. How much ever your income raises you still will have financial problems.

Mentally you start thinking that buying things is no more painful and you end up accumulating stuffs that could have been easily avoided. You get into a wrong consumption loop that will have destructive effect on your financial health.

You will never create an asset; you will always be in the consumption mode. Taking loans for consumption purposes should be avoided completely.

Fintotal Advice

Our advice is that buy only that is essential and buy only when you have the necessary funds with you. Paying for high end phones where in all probabilities you will not use 70% features regularly is a stupid idea.  Technology is so rapidly changing that in any case you will be holding an obsolete device in 6 months time. God forbid if you lose the phone, it is so painful paying EMIs for the phone you dont have with you.

Do not fall prey to peer pressure. Take pride in being prudent and taking independent decisions.

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