A customer eager to buy an iPhone 15 visited Croma, which quoted an MRP of Rs. 63,900 and was enticed with various discounts and EMI options. Seeking verification, they went to Imagine, where the MRP was Rs. 69,500, but a Rs. 5,000 discount and a potential Rs. 4,000 cashback on specific credit cards were offered. Believing in a Rs. 9,000 total discount, they purchased the phone using their ICICI Credit Card on an EMI basis. However, after twelve months, they were surprised to discover that the total amount paid in EMIs, late payment penalties, and interest far exceeded the original MRP and what they had expected.
If you have ever been in similar shoes, you must have also faced the following dilemmas, that whether you were deceived by the banks? Or were you misinformed by the store? Or were you intentionally bombarded with discounts and offers? If yes, then you have arrived at the right place, as this article attempts to address these questions, understand the viability of lucrative instant cashback offers and evaluate whether they actually benefit the consumer.
As of the date of writing this article, instant discount on iPhone 15 is provided by: ICICI Bank, Kotak Mahindra and State Bank of India. In addition to this, ICICI credit cards offer an instant cashback of Rs. 3000 on purchase of the product. To simplify, instant cashback refers to crediting some amount of the transaction back to the card holder, whereas instant discount refers to a price reduction at the point of sale. In this article, we will analyse the effect on the cost of iPhone 15 when purchased through ICICI Credit Card on an EMI basis.
We begin by understanding the concept of Instant EMIs, EMI on call & the discounts / cashback’s provided. We then analyse the terms and conditions and evaluate the total cost to the consumer.
EMI at Merchant and Post Purchase EMIs: Let’s Decode These
The EMI payment method allows consumers to invest in goods and services by allowing them the flexibility to pay throughout the period. This flexibility provides a greater deal of satisfaction to the customer by paying a small sum each month for the same goods instead of a large sum at once. This offer is generally utilised in two ways: first, EMI at the Merchant (Instant EMI) and post-purchase EMI (EMI on Call).
Instant EMI simply refers to the process of converting a sum into a monthly installment payment at the time of purchase. This method of payment is beneficial to the consumer as it allows the consumers to purchase the product quickly, on loan. It is beneficial to banks because it allows them to charge and collect various sums in forms of interest, processing fees etc. It is also beneficial for the merchant because it attracts a higher number of customers to buy the products offering EMI payments.
Upon availing this option, the consumer is at the liberty to select a tenure for repayment on the sum. Following which, the consumer is required to pay the loaned amount in monthly installments based on the rate of interest which is determined by the bank. In such cases, the bank makes the transaction to the merchant and later on the consumer has the liability to repay the bank.
To incentivise people to use/avail more EMI at merchants, banks have come up with cashback offers. The idea behind cashback schemes is that they allow cardholders to be rewarded a small percentage of their expenditure. This sum is generally adjusted against future bills or credited to the cardholder’s account. This incentivises the consumers to invest in more services and products.
Opposite to this, EMI on Call refers to converting a due amount on one’s credit card bills into an EMI, post purchase.This option allows the consumer to divide the whole sum into multiple equal fractions for a tenure such as 6 months, 12 months, etc. and repay the sum, based on the underlying rate of interest, as prescribed by the bank.
Having understood Instant EMIs, it is now proper to check if the consumers actually pay the amount that they are offered by the promises of cashbacks, discounts by the banks and merchants.
For this, we carried out a detailed study analysing the cost of a product in light of rates of interest (ROI), processing fee, among other covert charges applicable in such purchase. We discuss a hypothetical situation involving one Mr. Varun. Varun holds an ICICI Credit Card and wished to purchase an iPhone 15 on an EMI basis. The following is the analysis of the costs Mr. Varun would have to pay in case of Instant EMI.
Analysing the Cashback “Scheme”: Is it a Cost Issue or Lack of Information?
For the purposes of it, let’s assume that Mr. Varun is purchasing a product at Imagine Online store and opts for Instant EMI, with a tenure of 12 months. The following table describes the costs associated with the transaction.
| MRP of iPhone 15 | Rs. 69,500 |
| Cost of iPhone 15 (MRP) at the online store: | Rs. 64900 |
| Instant Discount on ICICI Credit Card | Rs. 3000 |
| Total Cost of Iphone, after discount (as displayed on the website). This is the amount to be calculated for EMI purposes as well. | Rs. 61900 |
| Interest rate charged | 15.99% p.a |
| Tenure and the EMI amount that is mentioned on the website for that specific tenure | 12 Months- Rs. 5616/month |
| Total amount paid in 12 months EMI for 12 Months | Rs. 67392 |
| The processing fee to be paid at the time of purchase (which is left out on the website, but present in TnC). | Rs. 199 |
| GST to be paid at the time of purchase | 18% |
| Late payment fee (which is left out on the website, not told to the consumers until asked, but present in TnC). (which is left out on the website, but present in TnC). | Rs. 1200 + 18 % GST = Rs/ 1200+ Rs 216= Rs. 1416 |
| Foreclosure (which is left out on the website, not told to the consumers until asked, but present in TnC). | 3% on the outstanding principle amount + next month’s interest. |
| Total cost of product if the loan is not foreclosed and Mr. Varun doesn’t incur a late payment penalty. | Rs. 67,392 + Rs. 199 + 18% GST. |
| Total cost of the product if Mr. Varun incurs at least 1 late payment penalty during the 12 month tenure. | Rs. 67,392 + Rs. 199 + 18% GST + Rs. 1416. |
From an eagle eye perspective, all is good with the costs mentioned in the table. But a deeper analysis is warranted for the sake of understanding the impact on the consumer. Following are our observations:
First, the official ICICI Credit Card website promises an instant cashback of Rs. 3000 on using the card to buy an Apple product. However, upon purchasing the product, the Apple website offers an ‘Instant discount’ of Rs. 3000 instead of a cashback. This implies that either the consumer lacks a cashback promised on the card or that the merchant and the bank are using the terms ‘instant discount’ and ‘cashback’ interchangeably to attract more customers. This interchanging of terms would lead a consumer to believe that in addition to an instant discount at the merchant of Rs. 3000, they will also receive a cashback of Rs.3000 as promised by the bank.
Second, is the intentional information disparity created to deceive the consumers. It was surprising, to note that the information regarding substantial charges such as late payment and foreclosure fees was generally not informed to the consumer ( yes, we pretended to be customers). This essentially implies that the consumer is unaware of their complete obligations related to the loan amount.
Third, since the purchase took place via credit card, a late payment fee is incurred when a person fails to pay the Credit Card EMI on the due date of the Credit Card bill for that month. The date of payment of credit card (which can be altered upon a request from the consumer) is 5th of the next upcoming month. Once a product is purchased via Credit Card EMI, the minimum amount payable on the bill will be the EMI for that month plus an additional amount from the remaining billed transactions, if any.
When a person fails to pay the amount by 5th, a late payment fee is levied immediately. In a country like India, it is often difficult for consumers to make timely payments due to the absence of any strict compliance with salary payment dates. This essentially means that most people may have to pay late payment fees not because of any other reason except the fact that they haven’t got their salaries yet.
Also read: Consumer Finance Loans: A Scam Targeting the Middle Class?
This can be avoided if the bill payment date exceeds the 5th of the month. However, banks don’t allow any change to happen to the bill payment date and even if they do, they usually will enable the change to happen once in a lifetime (information which is not available to the consumer, unless specifically enquired and investigated).
Fourth, the discount provided is essentially not a discount. It’s rather a way to lure consumers to buy products using a Credit Card. This is so because the total cost paid by the consumer, assuming no late payment at all, is Rs. 67,392 which is much closer to the MRP of the product, Rs. 69,400. Essentially, the consumer despite availing several cashback/discounts is still paying a sum near close to the MRP, but the Banks are getting a cut in the MRP for creating this innovative way of loan.
This brings us to the verdict:
Credit Card EMIs: An Orchestrated Deceive
Our study indicates that opting for EMIs has several drawbacks which the consumer isn’t made intentionally aware of. First, upon opting for EMIs the overall cost of the product does not change significantly for the customer. Second, once opted for EMIs, the customer is constantly pressured to pay the EMI on the due date of the next month, without any surety of whether they will receive their salary before the same. This essentially increases the chance of incurring penalties on your loaned sum, which they were essentially not informed at the time of purchase or conversion.
Thirdly, despite paying on time for several months, any default in payment in the EMIs results in an instant reversal of any cashback or discounts which were availed at the time of purchase, thus ultimately paying more than the stipulated MRP. Fourth, upon failing to pay, the penalties charged significantly increase the overall expenditure of the consumer. Fifth, that upon opting for foreclosure, to avoid paying interest for subsequent months, the consumer is forced to incur an additional charge for foreclosure.
Reading through these, it is hard not to find Credit Card EMIs as non-problematic and in consumer interest. These also indicate the (intentional) gap in communication between the consumers and banks and merchants regarding all obligations related to credit card EMIs, thus leaving the consumer in a vulnerable position.
Conclusion
Cashback offers, instant discounts, no cost EMIs have for long grabbed the consumer’s interest and money. However, while seeming to be consumer friendly, this analysis reveals that these methods might not be as lucrative as it seems. This article essentially highlights the importance of understanding the TnC which is attached to the use of Credit Cards while making costly purchases. The article also highlights the importance of having a more consumer friendly interface and transparent communication of all costs attached to a transaction.
Thus, ensuring more consumer centric services. In our example, Mr. Varun suffered due to absence of knowledge about hidden costs accompanying the credit card transactions. We therefore recommend, don’t be Mr. Varun, be a smart consumer, read the TnC, talk to the bank representative, understand the covert liabilities to ensure you don’t end up paying more than the required amount.
