Smartphones on EMI: The myth of the zero percent interest rate

There is a lot of aspirational value attached to having a high-end smartphone. Advances in technology have quickened the pace at which smartphone manufacturer’s churn out models. For users, it is getting more and more difficult to keep up with the times.

With smartphone prices increasing, manufacturers were earlier being limited to high-end clients for many of their premium smartphone offerings. Apple was the first to break that mould by introducing equated monthly instalment (EMI) schemes for users who want to get their hands on an iPhone or iPad, but can’t afford it at one shot.

An EMI against a credit card works in a slightly convoluted way. The full amount for the smartphone is accredited against the buyer’s credit limit. The user must then function with the reduced credit limit, until the full amount is paid. While EMIs were only offered on credit cards, nowadays companies are providing these schemes on debit cards as well.

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Smartphone companies are rolling out EMI schemes for their premium models (Image credit: Reuters)

The move gave Apple a huge amount of success in the Indian market for its iPhone series, with the company seeing iPhone sales going up by almost 300 percent. EMI schemes are available for all Apple products, including the iPhone 4, 4S and iPhone 5. 

Currently, an iPhone 5 with 16GB of internal memory is priced at Rs 45,500. Using an EMI scheme, users can get the iPhone 5 with a down payment of Rs 16, 900. The rest of the payments can be spaced out over 6 months, with users shelling out Rs 4,752 per month. Alternatively, the company also allows for a 12-month deal, which allows users to pay Rs.2, 376 each month. The iPhone 5 can also be purchased without any down payment, but this deal comes with a processing charge over the principal cost of the smartphone.

Apple has come up with various EMI schemes for its iPhone offerings…

Samsung has also been heavily promoting its premium smartphone brands as affordable alternatives for users. The South Korean company recently rolled out a slew of TV and print ads, which showcased smartphones like the Note 2 or the Galaxy S4 being affordable options. Taglines like, “I bought a Note 2 for zero” are being used to bring across the affordable option of picking up a smartphone with an EMI scheme.

The Galaxy S4 comes with a price tag of Rs 40, 300, but can be bought without any down payment. Users can instead shell out Rs 4,752 per month for half a year, without any processing fee, or pay an installment of Rs 2,376 for 12 months, with a processing fee of Rs 855 per month.

Samsung has also come up with competitive EMI schemes to get users interested

BlackBerry and HTC also have EMI schemes that are spread out over 9 to 12 months. While every company has assured users that there is no interest on EMI schemes, the fine print says otherwise. Many banks will charge processing fees on select smartphones. The stores that users buy their smartphones from may also have differing rates for processing fees. This processing fee in turn adds to the base cost of the smartphone, which makes the zero percent interest rate claim false.

That is where the little-known facts of EMI schemes begin to surface. Despite company assurances, the average processing charge on credits cards can go up to a staggering 8.75 percent, which will be levied over the principal amount. 

EMI schemes do not take into account theft or damage. Irrespective of whether users have their phones anymore, EMI payments must be made. Online stores like Flipkart and TheMobileStore also have their own rates for processing fees, but do not charge interest on the EMI payments. 

In terms of competitive pricing, the difference between buying a smartphone upfront and under EMI scheme should also be considered. An EMI scheme will always charge users the maximum retail price (MRP). Most retailers, however, sell smartphones below MRP if the phone is bought upfront. That could amount to a 3 to 5 percent discount. Online shopping sites like eBay and Snapdeal will also give cheaper deals when compared to retail outlets.Thus, EMI schemes, while cheaper at the onset, may prove to be more expensive for users.

In this day and age, the latest smartphone is a goal that a lot of people are increasingly working towards. However, the idea of getting the device at a staggered cost may not be such a good idea, taking into account the high processing fees as well as reduced credit limit that users will have to put up with.