I was talking to a young cousin sometime back. He told me about a lot of electronic upgrades that he made in his home this festive season. He spent a few lakhs doing that.
It came as a surprise to him when I asked him how long he was saving for it. He said he didn’t use any of his savings for it! He just went big with the purchases using his EMI card.
To be honest, I was a bit surprised.
But I think, things are changing now.
Gone are the days when people needed to save diligently for months/years together to buy things. Now, they can just walk in a store (or go to an app on their phone) and buy it using instant credit, with the irresistible attraction of the flexibility to pay it all back in easy installments, and at ‘no’ extra costs. Buyers have never had it this good I guess.
So why is it that young people are using new-age EMI Cards for shopping? The few obvious reasons (and we will discuss them later) are:
- Increased affordability to purchase bigger items that were earlier unaffordable,
- Flexibility to choose your repayment tenure to manage your EMIs in line with your cashflows,
- No-cost EMI (compared to credit cards, etc.),
- Attractive offers (extra discounts/cashbacks) that are available only to EMI card holders, and finally
- And finally, the convenience of it all
Buyers these days are bingeing on credit and buy-now-pay-later options during the festive sales. And this is increasingly becoming a trend if you check the data of online sales that are publically available for the major ecommerce sites operating in India.
This season, I could clearly see that online sites like Amazon, Flipkart, etc. had ramped up their credit offerings to the customers before the festive sales began.
So what is this magic wand that grants all your wishes?
What exactly is this EMI Card?
EMI Card is actually a pretty simple thing. It’s a card that comes with a pre-approved loan amount (limit) that the buyer can use to pay for their purchases. Once you swipe the card and purchase something, it automatically converts the purchase amount into monthly EMIs of flexible tenures ranging from 3-24 months.
In a way, this EMI card eliminates the need for a credit card for many, more so for those, who used to find it tough to get credit cards earlier.
The pre-approved limit to go and spend and pay back later in small bites (EMIs) has made big purchases quite easy for so many Indians now.
But this is not all.
A major attraction of these EMI cards is that it offers zero-cost finance. This differs from zero-interest but it is still something that further fuels the desire to spend money more freely for many.
This whole idea of No Cost EMI where no interest is charged with each EMI as such (that too with no initial or minimum payment upfront) has been a gamechanger for EMI cards. The EMI Card is one new digital payment instrument that is increasing affordability for many and hence, gaining a lot of fans over credit cards these days.
And what if you want to foreclose it? From what I understand, mostly there are nil foreclosure charges so one can opt to foreclose on the EMIs without paying any extra charges.
The EMI card issuers have numerous tie-ups and promotional agreements (with manufacturers, platforms, stores, etc.) that allow them to offer such convenience to buyers. So it’s actually the institutional tie-ups and bargaining between organizations that results in zero-cost EMI for EMI card users in India.
They are cheaper than the typical credit card EMIs any day as credit cards end up charging close to 30-40% per annum from their borrowers on their outstanding amount.
Another option that is getting popular these days is the BNPL (or Buy Now Pay Later) option. So with credit cards, EMI cards, and BNPL options, I can easily say that buyers have never had it this good.
But that said, the EMI cardholders need to be very careful.
Though the card allows you to prepone your dreams and purchases, it doesn’t mean that you should start spending recklessly. And it is very easy to go down that route. It is in fact, quite addictive.
Your higher aspirations or desires may want you to buy/upgrade regularly. But this is not right if you do not have a large income to support such kind of spending. I am never the one to ask you to save it all. One should balance saving/investing with spending. But one should never spend to show off as it may lead to you getting caught up in an unmanageable debt spiral.
My general advice is that you should never spend the money you cannot repay back comfortably, even if the repayment of loans is offered to you on quite attractive terms. So please do not overspend. But if it works for you, then the EMI card can be quite useful for a lot of people. But do understand all the charges before you go swiping.
All said and done, there is a changing preference of consumers these days. Purchasing on EMI is the new trend and it’s gaining mass acceptance. An EMI card is loaded with a pre-approved amount that can be used to spend freely and pay back later in small digestible parts that are evidently far more affordable to many buyers now. And this is what is making EMI Cards the ideal payment method for many these days.
I don’t want to be that boring guy who always asks you to be careful and borrow only when you need, but at the cost of sounding like an old record, please remember that inspite of the convenience offered, it’s very important to use financial tools like EMI Card very judiciously.