Is the Apple iPhone 5 EMI offer worth it?

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By Bindisha Sarang /  18 Feb 2013 , 10:10

Apple has been carrying full-page advertisements for its iPhone5 in various newspapers of late. The advertisement asks “Why wait?” when you can buy an iPhone5 for a down-payment of just Rs16,990. Sounds like a deal? Or is there a catch somewhere?

Firstpost decodes this iPhone offer. Read on.

What’s the offer: There are down payment offers going on iPhone 5 iPhone 4S and iPhone 4. However, we will decode the 16,990 down payment iPhone 5 offers. The iPhone 5 is available in three models – 16 GB, 32 GB and 64 GB. The MRP for these models with Apple authorised resellers is Rs 45,500, Rs 52,500 and Rs 59,500 respectively. You will have to pay Rs 16,990 as down payment and the remaining amount will be converted as an EMI on your credit card.

You have two EMI tenure options. First, you can choose the six EMIs option and here you won’t need to pay a processing fee. Another is the 12 EMI’s option where you will need to pay a processing fee (which varies according to the model).

Which bank’s credit cards: The offer is available at all Apple-authorised stores on credit cards from nine banks. These are Axis Bank, Citibank, HDFC Bank, HSBC bank, ICICI Bank, IndusInd Bank, Kotak Mahindra Bank, SBI Card and Standard Chartered Bank.

Finer details:
16 GB:
MRP: Rs 45,500
Down payment: Rs 16,990
Total EMI amount: Rs 28,150
6 EMIs: Rs 4,752/ month (Processing fee is zero)
12 EMIs: Rs 2,376/ month ( Processing fee is Rs 855)

32GB:
MRP: Rs 52,500
Down payment: Rs 16,990
Total EMI amount: Rs 35,510
6 EMIs: Rs 5,918/month (Processing fee is zero)
12 EMIs: Rs 2,959 (Processing fee is Rs 1,065)

64GB:
MRP: Rs 59,500
Down payment: Rs 16,990
Total EMI amount: Rs 42,510
6 EMIs: Rs 7,085/ month (Processing fee is zero)
12 EMIs: Rs 3,542/ month (Processing fee is Rs 1,275)

For understanding sake we will decode the 32 GB model offer.

What’s the snag: If you take a macro view, the offer looks like a good deal. You pay a starting lumpsum and the remaining amount as EMI. Also, the six month EMI does not come with any processing fee, and even the 12 EMI option comes with a small fee. But then, as money related matters go, God is in the details. How the deal really pans out for you will vary on a case to case basis. So here are a few:

Situation 1: You choose the 12 EMIs option.

Case 1: Here you pay the 16,990 as cash and 12 EMIs on the credit card for a Rs 1,065 processing charge and a service tax of around Rs 131. Keep in mind that though you are paying zero percent rate of interest, the bank here is earning Rs 1,065 as a processing fee which is as good as an interest you pay for the facility.

So let’s say, I give you Rs 10 as a loan and tell you to pay back Re 1 per month in 10 months. You think I am not charging you an interest after all, since you are paying back Rs 1 every month for 10 months. But, here I also charge you a processing fee of Rs 1. So, the actual money I lent to you is Rs 9 which you have to pay back in 10 months, a total of Rs 10. So Rs 1, which is charged as a processing fee, actually works as an interest, and works out at 23.56 percent per annum.

Harsh Roongta, CEO, Apnapaisa.com, says: “So actually, you’ve borrowed on EMIs Rs 34,445, and not Rs 35,510 and it’s like you’ve paid an interest amount of Rs 1,065, which comes to around 6 percent per annum.” Here the total cost will be Rs 53,690, That’s Rs 1,196 more.

Doesn’t look so bad isn’t it? But there will be many buyers who won’t even have the Rs 16,900 down payment amount as cash payment. And they will put this amount on the card as well. See how the numbers work out in such a scenario in the next case.

Case 2: Here you put the 16,990 as well as the 12 EMIs on the card for a Rs 1,065 processing fee and a service tax of Rs 131.

Since you will put the down payment on the card, you will have to take care of the whole down payment on your next credit card due date to avoid any interest.  Getty Images
Since you will put the down payment on the card, you will have to take care of the whole down payment on your next credit card due date to avoid any interest. Getty Images

Since you will put the down payment on the card, you will have to take care of the whole down payment on your next credit card due date to avoid any interest. Chances are most won’t be able to take care of the amount as a lumpsum, and let’s not forget that in the next card statement you will also have the EMI amount to service.

So more often than not, the down payment will be rolled to the next month on revolving credit. Credit cards charges 30-36 percent per annum for revolving the credit amount. Adhil Shetty, CEO, Bankbazaar.com says, “You should never revolve credit since it’s the most expensive type of debt you can ever get into.” Now, lets assume that you revolve Rs 16,990 for 12 months, just like your EMI, and you will land up paying around Rs 3,500 as total interest on the down payment amount for a card that charges 3 percent per month as interest.
And the total cost for the phone you pay will be Rs 57,196, which is around Rs 4,700 more.

Now keep in mind, we’ve take a credit card which charges a rate of interest of 3 percent. But if your card charges more than that, your phone will easily cost more than Rs 5,000 over the MRP of the phone.

Now, you would say, that you won’t take 12 months to pay off the down payment amount, but let’s be honest, there is a good possibility that you already have some outstanding balance on the card, which you anyways need to take care off.Add this down payment amount to that and you might just take that much time. And even if you argue that you would take only six months to pay off the down payment amount, you would still pay around Rs 3,500 for the phone over the MRP.

Situation 2: You choose the six EMIs option.

Now let’s take the scenario where you choose the six months EMI offer and hence there is no processing fee, and hence there isn’t an element of interest.

Case 1: Here you put the Rs 16,990 as well as the EMI on the card for zero processing fee.

Pretty much the same case like the one mentioned above, the only good part is that you save on processing fee. Do your numbers to get the real cost of buying the phone. The more time you take to pay off that down payment amount, the more expensive your phone will be.

Case 2: Here you pay Rs 16,990 as cash and EMI the remaining amount for zero processing fee.

Now, if you go for this deal, it looks like the best option, isn’t it? You don’t pay any interest disguised as processing fee whatsoever, nor do you pay interest on the down payment amount, since you are not putting this amount on the card, but paying cash.

But then look again. We looked at some online offers and found that they too had six-month deals where you did not pay any processing fee, but instead they offered a promotional discount of Rs 1,000.

In fact, when we check snapdeal.com, we found that the 16 GB phone was available for Rs 44,500 (Offline was Rs 45,500) and they further offered a promotional discount of Rs 1,000. So, the total cost of the 16 GB phone would come to Rs43,500 for six monthly EMIs. That’s Rs 2,000 cheaper than the offline offer. So don’t blindly fall for the offline offers. Do check for online deals.

The real issue: Another financial expert who did not want to be named said, “The truth is that people want to buy gadgets even when they don’t have the financial capacity to buy. And by getting into these EMI offers they simply get into unmanageable amount of debt.”

If this iPhone deal works for you or not would really depends on which case you belong to. If you can pay down payment as cash and put the remaining on six EMI or even 12 EMIs, it might work. If you are putting the whole thing on the card, it might not be the best thing to do.

To buy or not buy the iPhone and which mode to choose is your call. We’ve simply tried to show you different scenarios to help you take an informed decision. Remember, wherever you buy anything on card the deal never really looks the same.

But if you are buying that iPhone even when you cannot afford it or have the financial capacity to do so, do download the getting- debt- free app. After all if you continue to buy things on EMI, you might need this apps soon.


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