How many people can honestly say that they are not tempted to go on a shopping spree with all the stores giving festive discounts and great offers? And thanks to the considerate retailers who understand the need of liquidity at that hour and offer EMI payment options. Equated Monthly Installment technique of payment has grown popular especially for the shopping of mobile phones, laptops, LEDs, gadgets and other electronic appliances. It allows the customers to buy the product and start using it right away but its price is paid in monthly installments stretched over a period of time. Now it may look like a walk in the garden but don’t you want to learn about the cons? Here are some costs which you will be bearing while paying through an EMI option.
Interest included in the payments
If you have been thinking that by choosing the EMI plan you will be paying the exact amount as the selling price of product, you need to lift those rosy-hued glasses. The amount you will be paying over the period of months will definitely be including the interest.
Rahul bought a laptop worth INR 50,000 with an EMI scheme as he has been offered by the credit card company through a tie-up with the retailer. The EMI was for 5 months and accordingly it should have gone down as a down payment of INR 5,000 with 5 EMIs of INR 9,000 each. But as Rahul found out, along with the down payment of INR 5,000 the EMIs were of INR 9,200 each so he ended up paying INR 1,000 more, thanks to the EMI scheme.
Before you too go for an equated monthly installment, ask about the hidden costs first to avoid such events. After all you are meant to do discount shopping, not to pay extra in the name of festival shopping.
Processing fee
As it happens, most credit card companies charge an additional cost which is the processing fee to allow you to buy through the EMI options. For example, HDFC bank charges a processing fee of 1.5% or INR 150 whichever is higher. The amount of processing fee differs in case of all banks and should be considered wisely before opting for the EMI payment system.
The default in EMIs charges
What happens when you fail to pay the EMI on due date? You get charged additional interest charges along with late payment fees and taxes. The interest charged is at normal rate which could be anywhere between 14% to 20% and even more, as the late fees differ with every bank. Furthermore, if you default in the payment of EMIs for 5 months, the commodity you have bought shall get confiscated.
No discount on the product with EMI payment option
Yes, as you can see if look closely, many retailers do not offer any discount to the customers if they choose to pay through EMIs. That mobile phone costing INR 20,000 which is available on EMIs could be bought for INR 18,000 if bought without the equated monthly installment payment option.
Penalty on pre payment of the EMIs
When you select to pay with EMIs, the retailers also attach a pre-closure condition which says that if you pay the whole amount before the decided period, you will be charged a penalty of around 1.9% to 3% on the outstanding principal amount. So, if you have the cash to pay off the amount, give it another thought.
Other things to keep in mind before choosing EMI payment method
Many people think to buy a new phone or a refrigerator by being so impressed with the highly advertised EMI schemes. What they do not realize is everything that shines is not gold. Read the fine print carefully which is written on your credit card agreement or the retailers agreement. Also check if the total amount you would be paying in down payment and EMIs is more than the selling price or MRP of the product.
Keep an eye out for online as well as offline retail stores for discount deals on the product you want to buy. Compare the prices to determine if you can get a better price than what you would be paying with EMIs.
Some credit cards offer zero pre-closure facility so that you can pay the whole amount whenever you get enough cash, without the risk of pre-closure penalties. Again, read the fine print and other conditions attached to the EMI payment methods.