This or that: EMI or outright buy for gadgets?

Today the desire to own a fancy gadget is enough for you to pick one immediately with an option to pay later. With lenders and financial technology companies offering newer channels, getting a loan to buy anything has now become much easier. However, what is the impact of this on your money? Mint helps you find out which is better for you—outright buy or on equated monthly instalment (EMI).

Cost

Many lenders and retailers market an EMI option as if it is available free of cost. There are charges attached to it. Some lenders may ask you to buy a card. There could be interest, processing charges, one-time joining fee and annual fees. Interest for buying gadgets can range between 14% and 30% per annum. Processing charges may also apply. For an outright buy, you don’t have to pay these costs.

EMI: bad

Outright buy: good

Process

To get a loan from a lender with whom you have no financial relationship, you may have to go through the know-your-customer (KYC) process. Hence, you may have to provide documents such as permanent account number (PAN), income details and a cancelled cheque. You may also have to go through verification and approval process. For outright buy, you just pay on the spot.

EMI: bad

Outright buy: good

Limitation

EMI options come with transaction limitations too. For instance, some sellers offer EMIs on only select products and for a limited amount. The number of items that you can buy on EMI may also get restricted. The choice of financial institution may also get restricted as only certain lenders offer loans for certain products. With a cash down payment, none of these apply.

EMI: bad

Outright buy: good

Credit score

When you take a loan, your lender will send your credit information to credit bureaus. If you default, your credit score will be impacted. Once impacted, it may take up to 9-12 months of sound repayment behaviour to bring it back up. If you have a poor credit score, your future borrowings will also get impacted, as lenders check this score for lending. Outright buy has no such issue.

EMI: bad

Outright buy: good