Think before you go EMI shopping
The option to pay in instalments is a relief, but it can also cause you to spend more. And we’re not talking about that smartphone you didn’t quite need, either. Here’s what you’re forgetting.
Until a couple of years ago, the term easy monthly instalments (EMIs) was restricted to those with hefty home and car loans. Today, everyone with a credit card, and soon, even with a debit card, is talking about it. At most shopping websites, brick-and-mortar stores and even travel agents, you can convert bills as low as Rs2500 to EMI. If you’ve been using the EMI payment option to afford your latest purchases, here’s what you have to keep in mind before you swipe your card.
Check the fees: An obvious one, but did you know that EMI charges at different merchants can be wildly different? There are two types of charges – processing fees and the interest rate. Generally, if there is an interest rate, the processing fees are small. This, for example, is the case with purchases at Croma. If you were to pay with an Axis Bank credit card here, you’d pay just Rs150 as processing fee, but 1.5% per month as interest.
If the interest rate is zero, however, the processing charge can be high. Naaptol, for example, will charge 6.25% if you wish to pay over six months and 8.6% if you wish to pay over nine months, while electronics retailer Next charges 5% and 7%, respectively. Instead of paying these charges, however, look if a retailer with fixed charges is offering just the product you wish to buy. On larger amounts, a fixed charge is always better. Flipkart and Yebhi, for example, only have fixed charges. At Flipkart, for example, you pay a flat Rs1500 for a 12-month EMI.
As far as possible, however, look to pay your EMI in three or six months. If you can do this, there are a few places where you may not even be charged a processing fee, as with Snapdeal.
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Don’t exceed your limit: In converting your purchase into an EMI, you need to be careful you don’t exceed your credit limit, thereby incurring over-limit charges. This is because your credit limit is reduced by the full amount of your purchase even though you’re paying in EMIs. It is only reduced as you repay the amount each month. So, for example, let’s your credit limit is Rs75,000 and you purchase a refrigerator from a store for Rs60,000 and will be repaying this amount in 12 installments of Rs5,000 each. In the next month, if you make purchases worth Rs25,000, you’d have exceeded your credit limit. Over-limit charges are generally Rs500 to Rs750 or 1.5%-2% of the amount you exceed your limit by, whichever is higher.
Buy one at a time: As far as possible, checkout only one item if you’re paying in instalments. This is because, particularly with an online purchase, you may not be satisfied with what you’ve got or the item you’ve received may be defective and the retailer may not have another piece. In these cases, you’ll be receiving a partial refund of your money, so even though your bill has reduced, you won’t be returned the processing charge.
Check the machine: It does not matter nowadays if the shop you’re at doesn’t offer EMIs, you can simply contact your card provider and convert your purchase into an EMI. If you plan on doing this because you’re getting a better deal at a local market (say on a new camera lens at Lamington Road in Mumbai) than online or at Croma, you must ensure that the shop uses your card on your provider’s machine. If this isn’t the case, you won’t be able to convert to EMI. In the terms and conditions for HDFC cards, for example, it says ‘EasyEMI in POS (point of sale) transactions is valid only on swipe done on HDFC Bank swipe machine’. You may be in a fix if you can’t pay in instalments later. Hopefully you already know how hefty non-EMI interest rates on your credit card can be and how they can swell if you can’t pay up on time.