Borrowing from an NBFC works out to be the cheapest route to finance durable purchases, followed by bank loans.
Planning to buy durables in the ongoing Christmas and New Year sale? Shopping on your credit card is going to be expensive. Banks have stopped zero interest EMI schemes on credit cards following RBI instructions. While you can consider loans from PSU banks after the recent reduction in interest rates, they are still a high-cost option.
We compare choices before consumers on credit purchases and zero in on the best option.
Credit cards
After the recent regulatory change, credit card EMI schemes carry an interest. This interest is about 12 per cent for three/six months and 15 per cent for nine/12 months. However, if you choose this mode of payment, you can be free of hassles as there is no requirement for a down payment or the need to provide proof of address and identity. But, note that you can’t use just any credit card. It should be a provider whom the retailer has a tie-up with, or else you don’t get to avail the EMI scheme.
After the recent regulatory change, credit card EMI schemes carry an interest. This interest is about 12 per cent for three/six months and 15 per cent for nine/12 months. However, if you choose this mode of payment, you can be free of hassles as there is no requirement for a down payment or the need to provide proof of address and identity. But, note that you can’t use just any credit card. It should be a provider whom the retailer has a tie-up with, or else you don’t get to avail the EMI scheme.
If not, you have the option of swiping your credit card for the full amount upfront and later convert it into an EMI. Converting credit card dues to EMI would reduce your monthly financial burden, but here again there will be an interest of 12-15 per cent per annum. The EMI amount gets added to the minimum amount due every month in your credit card bill. If you pay, then no trouble. If not, be prepared to pay interest at 24 per cent per annum on the EMI.
Loan from banks
Recently many PSU banks including State Bank of India, Punjab National Bank and IDBI have reduced their interest rates on consumer durable loans by around two per cent. The interest rate is currently 12-12.75 per cent per annum. But, for a bank loan, you have to do a bit of running around. First, you would be required to provide your income proof and bank statement and prove your eligibility for the loan. Second, the banker will also require you to put some margin money for the loan and if need be ask you to bring a guarantor.
Recently many PSU banks including State Bank of India, Punjab National Bank and IDBI have reduced their interest rates on consumer durable loans by around two per cent. The interest rate is currently 12-12.75 per cent per annum. But, for a bank loan, you have to do a bit of running around. First, you would be required to provide your income proof and bank statement and prove your eligibility for the loan. Second, the banker will also require you to put some margin money for the loan and if need be ask you to bring a guarantor.
NBFC finance
Non-banking finance companies such as Bajaj Finserv, Shriram City Union Finance and Tata Capital, still run zero interest EMI schemes in the name of ‘Easy EMI’. Here, you will be required to provide identity proof, address proof, one cancelled cheque leaf and bank statement of last three months along with your photograph for a loan. You would be required to make a down payment of normally, the first four instalments and also pay a processing fee. These schemes are the cheapest of the credit options before a consumer today.
Non-banking finance companies such as Bajaj Finserv, Shriram City Union Finance and Tata Capital, still run zero interest EMI schemes in the name of ‘Easy EMI’. Here, you will be required to provide identity proof, address proof, one cancelled cheque leaf and bank statement of last three months along with your photograph for a loan. You would be required to make a down payment of normally, the first four instalments and also pay a processing fee. These schemes are the cheapest of the credit options before a consumer today.
This is the math: Say, you want to buy a Voltas 1.5 tonne air-conditioner that is priced Rs 31,990. If you go for the EMI scheme from Tata Capital, for example, your monthly instalment will work out to Rs 2,666. Rs 10,914 (four instalments) has to be paid as down payment; the remaining settled in eight months. The processing fee here will be Rs 250 flat. So, Rs 250 is the amount you shell out for the loan and this works out to an interest of around 1.4 per cent per annum.
Had you used a credit card for this purchase, your EMI would be much higher. Opting for 12-month tenure where the interest is 15 per cent per annum, the monthly instalment would be Rs 2,887. At the end of the twelve months you would have ended up paying Rs 34, 644.
Had you taken a consumer durable loan from a bank where the interest is 12.75 per cent per annum, the monthly instalment would be Rs 2,854, slightly lower than the credit card EMI.
So, borrowing from an NBFC works out to be most economical. But, those who don’t have enough money for the down payment can look for bank loans where the margin requirement is lower. Credit card EMI should be your last choice.
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