AMIT wants to buy a home theatre system of Rs 20,000 on his credit card. But there is a slight problem. If he makes the purchase on his card, he is not sure if he will have enough money to make the payment by the due date of the bill, and it will automatically fall into the interest cycle. However, Amit could avail of the 6-month equated monthly installment (EMI) facility, which is being offered at zero per cent interest on his card. Now, is this a fair deal? Let’s find out.
The scheme
Banks come up with special schemes to encourage people to make big ticket purchases. One such scheme is a 6-12 month EMI facility which is offered against specific product or for purchases above a certain limit. In case of Amit, he has to look at the exact position to know whether the 6-month EMI facility offered to him is as good as it looks.
Things Amit should check
1. The first thing he needs to find out is if the total amount that he will be paying as EMI is interest free or not. This means comparing the total amount that has to be paid before the use of the EMI and the amount that will be paid after using the EMI facility. If both the amounts are same then there is no interest cost to be paid and the ‘zero-interest offer’ is actullay as simple as it looks. If there is an interest cost incurred in the scheme, then the total amount will go higher.
2. Before signing up for any special scheme, Amit should read the fine print thoroughly to know the actual benefits. For instance, it is important to know the manner in which the entire amount is to be converted to EMIs. Is the facility available for the entire amount or will only a part of the total payment be converted to EMIs? The larger the amount that is considered for the EMI facility, the better it is for the card user because he can ensure that the payment is actually spread out over the entire period. For repayments, some banks have only a 6-month EMI facility, while in other cases they also offer a 12-month EMI. In terms of operation, convenience for the individual is important, thus Amit would have to check whether the 6-month EMI is suitable in terms of payment.
Also Read : 10 ways to use your credit card right!
Tips to keep in mind
One has to be careful about the entire situation as there can be times when the interest-free EMI is actually not so as it claims. And you would end up paying higher collected under some other head. This is nothing but a cost for you and so has to be avoided.
On the other hand when no interest is levied at all, the EMI facility can be beneficial, helping in spreading out the payment. In several cases, credit card companies induce people to buy products using the 6 or 2-month EMI route and many fall for such a tricks. If it is an additional expense for Amit then it is not something that he should go for because he will end up spending when he should not. But if there is no change in the cost and as he has already made up his mind to purchase the system he can use this facility, which will be an additional feature on his entire offering.
- By Satkam Divya
Source : Money Control
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