0% EMIs Offers on Credit Cards: Are they worth it..?

Next morning, when you peep into your daily newspaper, you might see pages dedicated to exciting purchase offers. With the festival season already underway, 0% EMI Schemes would dominate most of classified ads selling right from a trendy laptop to diamond jewellery, branded furniture for your dining room to a mind-blowing music theatre. Talk about being able to resist temptation. Can you?

0% EMI purchases on credit cards are an integral part of many companies’ marketing initiatives to boost sales. In-fact many buyers also wait for the festive season to take advantage of these attractive offers. The process is simple, go to the selected store, inform the merchant in advance about your intention to avail the scheme, swipe your card and pay the amount in EMIs of your desired tenure with no additional costs. Simple isn’t it?…or do they just look simple?………..

The answer lies in reading the fine print. To start with, 0% EMI offers come in different forms with different banks. Most popular type is to either make a purchase now & later convert it into EMIs or approach store where the facility is already available and avail the offer. The facility is available by most banks at more general purchases. There is no documentation for the facilities with on the spot approvals. Besides, few banks e.g. ICICI Bank, Standard Chartered Bank etc., today offer special EMIs cards converting purchases into EMIs. These cards come with a cost albeit lower than the normal credit cards, typically ranging 1.25-1.99% per month.

Limited Choice

The facility is available at select merchant outlets and that too, on certain products within a store. Thus, purchase of a HP laptop might be available on certain selected HP outlets only. Further, within the store also, not all HP laptops variants would be eligible for the benefit. So you have to choose an outlet that is part of the EMI scheme. Besides, merchants offer the facility under a strategic tie-up with the banks; hence support the transactions with cards from its network banks. E. g. Nokia, for its smartphones, has tied up with Citibank, HDFC Bank, Standard Chartered and ICICI Bank for the Easy EMI scheme. Thus if you hold Axis Bank credit card you cannot avail the facility. Sometimes choices are also limited in terms of tenures.

Another limiting factor that often triggers the EMI option is that the expense has to be above a specific limit. E.g. HDFC Bank, under the umbrella of “Easy EMI Offers”, offers furniture at Home Centre by Lifestyle only on purchases of above Rs 25,000. Besides, ICICI Bank on its “Orchid An Ecotel Credit Card”, offer 0% scheme for 6 months on transactions of value greater than Rs 10,000 at any Kamat group hotel, Likewise, “ICICI Bank Geejanjali Credit Card”, puts the minimum transaction value at Rs 5,000.  Kotak Mahindra Bank website says that transactions of up to and above Rs 5,000 and within 75% of credit limit can only be converted into easy EMI’s.

It’s not completely free

The 0% EMI schemes are not exactly without charges. Many credit card EMI schemes, even if they carry 0% interest charge, levy one-time processing fees ranging from 3-8% of the transaction amount depending upon the tenure chosen. HDFC Bank puts 4-7% (for 3, 6 months and 9months EMIs respectively) processing fee on laptop purchases from genuine HP outlets. This could translate into a tidy sum, when annualized. E.g. on a purchase of Rs 50,000, say the banks charges a processing fee of 5% for 6 month period, it work out to be 10% interest on annual basis. Today, this 10% charge stands more than what a 1 year FDs would earn.

Besides, the fee is payable upfront and would reflect in your statement immediately on the date of purchase. So you start paying interest on processing fee from the day one. Worse, since 0% EMI is a banking service availed by you, even the processing fee would attract 10.3% service tax. Besides, few banks put a foreclosure fee if you decide to close the transaction pre-maturity.

Ball is in the bank’s court…

The scheme on the face of it seems to favor the customer but in practice is tilted in bank’s favor as buyer is bound by most of terms & conditions, while availing the facility. First, being a normal credit service, it falls within the purview of overall credit limit and hence banks would reduce your overall limit to the extent of transaction value and only release it as and when the EMI gets paid each month. This limits your ability to spend further.

Moreover, contrary to usual practice of keeping 5% of the total amount as Minimum Amount Due (MAD), most banks put the EMI amount into your MAD, which causes you to make heavy payments throughout the EMI tenure, failing to do which leads to hefty charges at normal rates. Besides, the big one, the T&C section on HDFC Bank website says, in case of default, HDFC Bank reserves the right to foreclose the loan and debit the entire outstanding at one go. This can really strain your monthly finance and make you vulnerable to more defaults. So, keep an eye on this, while availing the facility. Also, few banks don’t offer reward points on such EMI purchases.

So, to conclude, while the genuine 0% interest EMI credit card schemes may truly be customer friendly, they rarely exist in realty. However, still they are beneficial for those who wish to buy things for which they don’t have ready cash, but are disciplined in their monthly payments. Also, differentiate between needs and wants. After all it’s a debt that you are taking, and any defaults or charges later on, would effectively defeat the soul of the scheme, which is to spread the payments and yet be cost-effective.