Buying a phone on an EMI? It may not be as simple

• There are different financing options available while buying a phone or gadget like a credit/debit card EMI, BNPL, or personal loans.
  
• For no-cost EMIs, the manufacturer agrees to pay the EMI on your behalf instead of giving you a discount.
  
• Calculate your total monthly outflow on EMIs for various gadgets taken on credit so that you are able to meet your monthly fixed obligations.

When Kolkata-based Dhruv Singh bought a phone earlier, it would last him for two years if not more. This time, he upgraded his phone within 6 months of buying a new phone because the next edition was out. Singh could ‘afford’ it, at a salary of ₹50,000, because he purchased the phone on a no-cost credit card EMI for which he has to pay ₹7,000 every month for two years.

With multiple options to finance a phone or any other gadget we fancy, buying a phone or a watch has now become easy and instant.

“There are many different options that are now available to the consumers. Embedded finance has enabled online portals like Amazon, Flipkart, etc to provide different financing options directly on the platform itself like EMIs through credit cards, BNPL and quick personal loans through multiple lenders,” says Aakash Yajnik, national sales manager, Lifestyle Loans, Loantap, an online loan platform.

EMIs are also available on debit cards. “Some retailers also offer in-store financing options that allow you to spread out the cost of your gadget over several months,” says Mahesh Shukla CEO and founder PayMe, an instant loan app. With such a plethora of options it is easy to be able to buy a gadget that we fancy.

Spoilt for choice
Each of the financing options comes with pros and cons. Let us take a look.

Credit card EMIs: Credit card EMIs allow repayment option of up to 24 months. Some banks even provide a tenure of up to 36 months. Taking a higher tenure loan reduces the monthly EMI burden on customers.

“However, on the flip side, when you make a purchase, your credit limit gets blocked, reducing the amount available for monthly transactions. Also, if EMI is not paid on time, it may result in late payment fees and interest charges that makes transaction costly,” says Ambuj Chandna, president , consumer assets, Kotak Mahindra Bank.

Debit card EMIs: Debit Card EMI can be a convenient way for customers without credit cards to make large purchases on an EMI basis. Plus since your EMI is linked to your bank account and auto debited, there is little chance of missed payments. However, all banks may not provide debit card EMI options and also the credit limit may not be large enough to make high value purchases.


Buy Now, Pay Later or BNPL offers customers instant access to credit, even if they do not have a credit card or the option of a debit card EMI. However, it typically has a lower repayment tenure of up to 90 days, which means customers have a limited amount of time to repay their debt.

Additionally, failing to pay on time may result in high penal charges and interest costs ranging from 2-3% per month which can add up quickly and lead to financial difficulties.

Personal loans: Personal loans may offer a loan amount of as high as ₹25 lakh. “It is low on convenience as loan amount will be disbursed in your bank account through which customers can make payment. Also, they are more suitable for other high ticket expenses such as health emergencies, education, marriage etc,” says Chandna.

Also, depending on your credit profile, a personal loan may come at a very high interest of up to 24% per annum.

Exercise caution while buying a gadget on EMI

While these payment options might be convenient, one must use them responsibly. “Buying things on credit should be planned beforehand to avoid any financial burden in the future,” says Yajnik.

Any of the above schemes involve paying an EMI over a period of time. This brings with it a certain amount of risk. “It makes you buy more than you can afford in one go,” says Arijit Sen, a SEBI-registered investment advisor, and co-founder of Merry Mind, a financial advisory firm.

Anything taken on credit must be paid back and one becomes vulnerable to debt-trap as cash flow management may go for a toss with too much outflow on account of EMIs.

“Understand the monthly EMI outflow – calculate total monthly outflow on EMIs for various gadgets taken on credit so that you are able to meet monthly fixed obligations. Also, keep in mind payment due dates as missing them may lead to penal charges and affect your credit score,” says Chandna.

“In any unforeseen emergency, managing these expenses over and above the regular and discretionary outflows becomes extremely difficult for a family. Thus, these no-cost EMI or buy now, pay later schemes are adding to the misery of those who exhibit impulsive buying habits,” says Sen.

Many people believe that No-cost EMIs are a great way to make purchases without much financial burden. However, this is not entirely true. “Here, the manufacturer agrees to pay the EMI on your behalf instead of giving you a discount and the consumer finds that it looks like a no-cost EMI,” says Akshay Mehrotra, co-founder & CEO, Fibe, an instant personal loan app.

If Singh gets bored of his new phone because a newer technology comes in and wants to change it after 8-10 months, he will be stuck with the EMIs of the ‘old phone’ for at least a year more. If he has the money and wants to prepay the loan, he will have to pay a prepayment penalty as well. In hindsight, Singh thinks that he should perhaps have not made the impulsive purchase and spent three times his salary on a phone.

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