Smartphones on EMI may not be so smart

We’ve all faced this dilemma of buying smartphones on EMI or not since January this year, we’ve been flooded with the equated monthly installment (EMI) schemes. Vivina Vishwanathan reports.

On a Sunday afternoon Krishna Daswani, assistant vice-president (programming), Zee Entertainment Enterprises Ltd, walked into Croma, Tata's consumer durables and electronics chain, at High Street Phoenix Mills in Mumbai to buy an iPhone — a product that he had eyed since 2007.

This time around there were two differences: it was the latest version from the Apple stable, the iPhone 5, and he could buy it in installments. "I have the money to make the complete payment right now. However, payment in installment looks easy on pocket as I have to pay it over a period of time," said Daswani.

We've all faced this dilemma because since January this year, we've been flooded with the equated monthly installment (EMI) schemes for smartphone deals.

What's on offer?

The deal mania started with Apple's EMI scheme on its iPhone 5 in December. Samsung immediately followed suit and aggressively started marketing the staggered payment scheme on selected products. In May, BlackBerry stated that it would sell its Z10 and Curve 9220 models on "easy" monthly installments.

The schemes vary for each model and brand, but the essential feature is a staggered payment plan wherein you pay for the phone over a period of months rather than at one go. For example, you need to make a downpayment of ₹16,990 upfront for a 16 G iPhone 5 that costs ₹45,500. The remaining ₹28,510 can be paid through EMIs of ₹4,752 for six months or ₹2,376 for 12 months.

Another offer allows you to make the entire payment through EMIs without downpayment, but with an extra processing charge. Samsung is seeing the deal do brisk business for its Galaxy Note II, Galaxy Grand and Galaxy Note 800 models.

"At present, almost 30% of our smartphone sales come through EMI," said Himanshu Chakrawarti, CEO, The MobileStore Ltd - an Essar-group owned mobile handset and accessories chain. Anything that breaks a larger number into smaller bits makes a deal look cheaper. But is it really so?

Processing fee

Though the mobile manufacturers and the banks advertise that there is no processing charge, reading the fine print reveals that banks do include it on select smartphone products and for select tenor, hence debunking the 0% interest claim. It varies from bank to bank and even store to store. In the Mumbai outlets of The MobileStore, you will find the list of each bank's processing charges.

The average charge is in the range of 1.0-8.75% on the principal amount for three months to nine months period. So for a ₹45,500 phone, the processing charge can go as high as ₹3,982, or 8.75%. Ask the question: Is there a processing fee for this deal and how much is it?

Payment option matters

Payment option can also make a difference to the phone's final cost. Initially these schemes were viable only through credit cards, but companies are now accepting debit cards as well. "Many financial institutions do this as they can use up the customer's credit limit for the EMI," said Devang Mody, president-consumer business, Bajaj Finserv Lending.

So if you are using your credit card for a purchase of R45,000 and you credit limit was ₹1 lakh, it will get reduced to ₹55,000 till the amount is cleared.

The scheme varies across different credit cards. An HDFC Bank Ltd credit card, for instance, gives you an "at no extra cost" offer. At present there is no processing charge on this scheme on certain models. An ICICI Bank Ltd credit card offers a cashback offer on the same Samsung smartphone that gives you a cashback of ₹5,665 on your credit card if you purchase a phone for ₹37,900.

The card you swipe matters for lower processing fee too (see graphics).

If you are using your card to buy, ask the question: What is the benefit or cost of this deal if I use my credit card? Name your card to make sure you get the right deal.

Compare for best pricing

If you buy a phone on EMI, the salesman will sell it to you at the maximum retail price. However, a cash down option offers a discount of 3-5%. Also, online shopping sites like Ebay.in and Snapdeal.com offer cheaper deals. "There are no cost overheads such as rental and inventories and hence the benefit can be passed on to the consumer," said Tony Navin, vice-president—business development, Snapdeal.com. "Processing charges and pricing depends on the manufacturers need to sell the product. If he wants to get rid of a certain product, you may get a cheaper deal. Also, it depends on the business proposition between the manufacturer and the financial services provider."

Always remember that haggling, even at fancy looking stores, always gets you a lower price.

What should you do

Convergence Catalyst, a research firm, estimates that smartphone sales will be in the range of ₹44 million to ₹48 million in 2013 in India (up by more than double from 2012.) And some of these sales will be nudged through the EMI route.

Before you sign up for such offers, understand that there is nothing called a 0% interest deal. You will pay one way or another. If it still works for you, go right ahead and buy the phone.