Should You Buy a Smartphone on Credit Card EMIs This Diwali?

In spite of the fact that smartphones can be costly and unaffordable, people still buy them and fall into a financial burden. Most e-commerce websites, such as Amazon, Flipkart, etc., as well as brick-and-mortar stores, such as Croma, and Vijay Sales, among others, are offering high-end smartphones on easy EMIs through credit cards and other credit facilities. Out of all, credit card EMIs are very popular as you do not have to do any formalities like submitting your personal and income details, submitting your documents, or downloading a credit app, etc. Furthermore, the credit limit is already available on your card, and hence there is no need to check your credit score. Such Credit Card EMI offers are aggressively promoted during Diwali to lure customers.

Here are a few benefits of buying a smartphone on Credit Card EMIs this Diwali: 

1. Special Deals:

Many online and offline merchants offer massive discounts on smartphones if you opt for the Credit Card EMIs option. For example, Amazon is offering a 10% instant discount up to Rs 10,000 on purchases made through Citi Bank and ICICI Bank debit cards, credit cards, and Credit Card EMIs.

2. No-Cost-EMIs: 

Due to the high competition during the festive seasons, many resellers are offering No-Cost-EMIs for up to 6 months. With this offer, the interest amount is refunded to you in the form of cashback. The second offer is Low-Cost-EMIs, where a very small amount of interest is charged on your purchase. There are other offers like discounts on the processing fees, etc. So, Diwali is the best time to take advantage of such offers where you do not have to pay a huge amount as interest for availing of an EMI facility.

3. No need to wait: 

With the convenience of lower EMIs, you can own that smartphone you have been eyeing for a long time. So, you get the product when you want without waiting until you save enough money for it.

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While credit card EMI facility offers many benefits, it also has certain drawbacks:

1. High rate of interest:

If you opt for credit card EMIs without No Cost EMI offer, you will have to pay a huge amount on interest. The rate of interest typically ranges between 13% p.a. to 28% p.a. depending on the terms and conditions of the credit card company. Even if you opt for No-Cost EMIs or Low-Cost-EMIs, the bank or NBFC will charge some extra amount one way or the other such as a high processing fee, no cash discounts, no promotional gifts, etc., which you would have otherwise benefited from.

2. Higher Cost:

Although the cost of your purchase is mainly determined by the rate of interest the lender charges you, other factors also contribute to determining the cost of your loan. When you avail of the credit card EMI option, most credit card providers charge you a considerable amount as processing fees. Moreover, the sellers show you the smaller amount of monthly EMIs you will have to pay, which makes the smartphone and loan look quite affordable. However, you end up paying much more than what you would have paid with a regular cash payment for the smartphone.

3. Monthly Burden:

If you frequently opt for credit card EMIs on your purchases, it will create a monthly financial burden on you. This will be an extra fixed monthly expense that you cannot avoid until it is all paid off. That can become very stressful if you are on a tight budget.

4. Depreciation: 

While buying anything through a credit card EMI facility, it is important to calculate the product's expected life. Consumer durable items, especially smartphones, depreciate rapidly over time, and it does not make sense if your product loses its value before the loan repayment. Furthermore, most brands launch new models periodically, which makes the previous models obsolete, and ultimately their prices drop.

5. Higher credit utilisation ratio:

When you avail of a credit card EMIs facility on your credit card, your credit utilisation ratio increases. It is advisable to maintain the credit utilisation ratio below 40% of your eligible credit limit. For example, if your total eligible loan amount is Rs 5,00,000, you should not take total loans of more than Rs 2,00,000, as it will increase your credit utilisation ratio and affect your credit score.

6. Damage Credit Score: 

If you are unable to pay your credit card dues on time, have a high credit utilisation ratio, and check your credit score multiple times in a short duration, frequently applying for loans, credit cards, and credit card EMIs can negatively impact your credit score.

7. Increased Prices: 

As stated earlier, the prices of smartphones have increased considerably due to a supply crunch and increased cost of components. If you want to buy your dream smartphone at the best possible price, then it is not the right time to buy a smartphone through a credit card EMI facility by paying huge interest.

To conclude:

Buying a smartphone on a credit card EMI facility this Diwali is not advisable as you will end up paying a very high amount over the loan tenure. While the monthly amount of EMIs makes it look affordable, it actually costs a lot more than the actual price of the device. However, if you are ready to pay the extra amount and need to buy the smartphone during the Diwali sale, make sure you check multiple online and offline resellers. Compare the deals they are offering and choose the one that has the best value for money. Moreover, remember to pay your credit card EMIs timely since not doing so can attract huge late payment charges, and it can negatively impact your credit score.

Warm Regards,
Ketki Jadhav
Content Writer