As more than half of India's population is under 25 years, Indians tend to spend more on buying the latest electronic gadgets. It is observed that due to changing lifestyles, the young generation splurges money on electronic gadgets.
Many e-commerce companies allow you to buy expensive gadgets like smartphones on EMIs (Equated Monthly Installments). Many banks offer the EMI option on electronic gadgets. The EMI option will be for a period of 3 to 36 months. The interest charged by the banks for this service will be around 12-18% a year. You will be allowed to buy on EMIs, only if you cross the minimum amount of purchase.
Assuming that the average life of the smartphone is about one year, you have to decide whether buying a smartphone on EMI is a good idea. Every personal financial decision you make, whether big or small, will have an impact on your overall finances. So, the kind of phone you buy will have a significant impact on your personal finances. EMI option looks very attractive to people who cannot afford a costly phone at one go.
Let us consider that you are buying Oneplus 6 (128 GB) which is priced at Rs 39,999 through the EMI option. The interest charged by the bank is 14% a year. For a 12 month plan, you will have to pay Rs 3,591 a month for 12 months. The total cost will come to Rs 43,092, which means you will pay Rs 3,093 more towards interest.
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Let us assume that you can afford to buy a smartphone worth Rs 15,000 but because of an attractive EMI offer, you end up buying a smartphone worth Rs 40,000. You have spent Rs 25,000 more than you can afford. Instead of buying a smartphone worth Rs 40,000, if you had bought a Rs 15,000 smartphone and made a good investment with the remaining amount, you would receive good returns in the future.
As interest rate is high, it is better not to buy a smartphone on EMIs. The value of the smartphone depreciates with time. It is good to save first and then buy the mobile. If you can't afford to make the purchase, it is advisable not to buy it. If you still want to make the purchase on EMI's, look for better interest rates and opt for the lowest tenure to reduce interest payments.