Years ago, I bought a HP 7 inch slate with voice calling (Yes - HP actually made voice tabs in India for a very short, blessed time!). The HP website had a No-cost EMI offer, with some discount if I went on that scheme. I never understood it, but was left feeling cheated at the end of the day since I felt I paid more than I anticipated. Why am I talking about this? Because I was checking out a phone today on Amazon, and the same offer was dangled.
The offer
A phone retails at INR 19,999/- and the website is offering INR 1,000 discount to any buyer. So phone price: INR 18,999/-
If I use a HDFC Bank credit card, I get INR 1,000/- flat discount . So Phone price: INR 17,999/-
If I use a HDFC Bank credit card EMI option ("no-cost"), I get a INR 1,500/- flat discount.Phone price: INR 17,499/-
But but but
When I click on the offer and select EMI payment via my credit card, here is what I see:
Amazon tells me I save INR 3,611.77 (including the item discount of INR 1K).
Focusing on the "instant discount", we know there are two components. INR 1,500/- for opting for EMI, and suddenly we see an INR 1,111.77 which makes this offer look too good to be refused. This is the bait for most of us.
I would pay INR 17,999/- without opting for EMI.
Amazon's "no-cost" EMI option on credit card purchases is one seems quite appealing on first glance . After all, it makes it look like we are paying INR 16,387/- for the phone - Right?
So, what is this INR 1,111.77 that crops up as an additional discount?
I got curious to understand what actually happens in the EMI route. Here is the summary of what I figured.
What I actually should pay according to the order summary would be: INR 1,944 per month for 9 months. That comes to INR 17,496. This is close to the price we expected originally post the INR 1,500 discount.
When opt for EMI routes, what happens in the backend is that we are taking a loan. In this case, since we are taking a "no-cost" loan, we need to pay INR 17,500/- back over 9 months. Amazon facilitates this by making it look like we took a loan of INR 16,387/- which we will repay at 16% interest over 9 months. To do this, they give us a further discount of the interest we will pay, and at the end of the day, I will pay the amount.
The bait
For people like me who clicked on the EMI option, it looks like I got a good INR 1.1K further discount. Which, in reality it is not since I do pay that INR 1.1K via my bank.
Here is what you actually pay
I thought it was fairly obvious. I would pay INR 17,496 over 9 months. Turns out I was wrong. Here are further additional charges:
HDFC bank will charge me INR 199/-+GST i.e. INR 235/- as processing fee with my first instalment
Every EMI i pay, I will need to pay GST of 18% on the interest component in that EMI. I calculated that, and it turned out to be INR 200/-
I may end up being charged additional interest based on when my credit card bill is generated. In my case that was an additional INR 94/-. This will vary depending on billing cycle, so I will ignore this amount for the time being.
Calculation source: Credit Card EMI Calculator by HDFC Bank, Amazon T&C
In my case, I would have ended up paying a minimum of 17,934/-.
What else did we lose
EMI payments do not fetch credit card reward points. In this case it did not matter to me since HDFC has withdrawn reward points for purchases made under this specific Amazon sale. On normal purchase via EMI vs upfront payment using credit card, rewards can make a difference.
My credit limit would also be blocked for 17,500/- for 9 months and will keep being unblocked step-wise as I pay my EMIs.
Net net:
My biggest grouse was the blatant misleading numbers and lack of transparency. Processing fees are hidden somewhere in some other section of Terms & Conditions. Noone mentions the GST charges. The so called "savings" are inflated by the interest we pay, which means the EMI is no longer "No-cost".
These no-cost EMIs are a way of getting people to sign-up to a facility that is a very large source of income for card providers. They are betting on the fact that once you get used to the convenience of paying nothing upfront but picking up the costs over a period of time, you will be used to that mode of payment. EMI costs are exhorbitant. Currently- upwards of 16% per annum. Unless you truly are in need of credit, avoid the hassle of EMIs even though the offers sound really really good!