Avoid Boarding the EMI Ship This Festive Season
During the festive seasons, the hidden bug of shopping starts biting a person from the inside. Seeing the market brimming with attractive discounts and offers, people get overwhelmed and often end up purchasing things that they don’t even need. The discounts and other schemes are just baits offered by the retailers for tapping the shopaholics and increasing their overall sales. Whether it is electronics, gadgets, automobiles or jewellery, one thing that dominates each of these markets is the lure of EMI (Equated Monthly Instalment) schemes.
Attracted to such an offer, Aakash thought of purchasing an LED TV for his new apartment on Diwali. The basic cost of the television was Rs. 42000, which was offered under an EMI scheme by the retailer, in coalition with a credit card company. The EMI scheme was for a period of 6 months which must have technically rounded up an initial down payment of Rs. 6000 and six equal monthly instalments of Rs. 6000 each. However, what Aakash had to pay was a down payment of Rs. 6000 and six monthly instalments of Rs.6833 each. Just because of the hidden costs involved, which mainly constitutes of interest payments, Aakash had to pay approximately Rs. 5000 extra for owning the LED television under the EMI scheme.
The retail merchants and banks and financial institutions understand that liquidity of funds during the festive season might be a barrier in increasing their sales. This is the reason why retailers, in coalition with the financing and credit card companies, choose to offer EMI schemes as an easy mode of payment. From the eyes of an avid shopper, such a scheme appears to be very attractive and might seem to be easy on the pocket. However, when seen from a knowledgeable perspective, the bitter truth reveals its ugly face.
There are several extra costs that the credit card and financing companies charge from the customers, thereby making the products more expensive than what they are. It is important to be aware of these hidden charges so as to evaluate the available options carefully and make a well-informed decision.
More Money Paid
As discussed in the aforementioned scenario, EMI schemes often enhance the value of the product in comparison to its original value by including the interest charges, processing fees and other hidden costs in the monthly instalments. This is the reason why Aakash had to pay Rs. 5000 morefor owning a TV under an EMI scheme. Had he been aware of the hidden cost game of the credit card companies or financial institutions, he could have easily dodged the bullet and saved himself a healthy amount of money. Therefore, it is advisable to study the instalment schemes carefully and evaluate the costs involved before making a final decision.
EMI Default
If a credit card is used for availing the EMI scheme, the amount of monthly instalment will certainly be reflected in the monthly bills, along with the other monthly transactions. In case, the buyers aren’t able to settle the monthly dues, the credit card companies will charge an annual rate of interest equivalent to 24-36 percent (depending upon the company) for non-payment, in addition to late payment charges.
No Discounts
Since discounts are the primary point of attraction for the customers, retailers offer a generous amount of cash or credit discounts on their products during festive seasons. However, when the retail merchants join hands with respective banks for offering EMI schemes, the products carrying discounts are not included in the list of products available against the payment made through EMIs. For instance, a laptop that costs Rs. 35000 is available for Rs. 32000 after discount option. However, when it comes to EMI, the retailer will make EMIs on the basis of Rs. 35000 only.
Penalties on Prepayment
Prepayment penalties are a part and parcel of financing options. Be it a car loan, personal loan or in this case, EMI schemes, paying off the entire amount of money due before the completion of a predefined period are subject to foreclosure penalties. Depending upon financial institution, these charges might range anywhere between 2-3% of the total outstanding amount.
EMI schemes are generally thought about as an easy means of purchasing expensive home appliances but such offers usually come with hidden costs and charges that tend to make the product expensive. It is ok to purchase an item on EMIs once in a while when it is must but avoid indulging in over purchasing. Though this option appears to be easy on the pocket, splurging and relying too much on EMI payments might not be good for the overall financial health. Therefore, before taking a final step, it is recommended to evaluate the costs involved in the EMI schemes and base the decision on this evaluation.
