The new iPhone is here. It is minus the hype, long lines and the high price usually associated with the aspirational brand gadgets. The price cut garnered a lot of attention, especially from Apple loyalists from across the world.

One such loyalist is Mumbai-based Aniket Sapre who’s been using Apple products since 2011 and is planning to buy the iPhone 11 in November. “I’ll finance the phone through an EMI because I am a loyal customer of a lending company; so I’ll opt for their no-cost EMI option," said Sapre, 38, who is a product head with a private bank. Sapre said he avoided buying the phones the company launched last year but is unable to curb the temptation this time around.

Following the launch of the iPhone 11 series, Apple has reduced the prices of several older iPhone models and Apple watches by 10-30%. The iPhone 11 will be available on 27 September, with the cheapest model available around 65,000.

Making an exception

Sapre is a part of the consuming class that has bucked the expenditure slowdown in India that has seen sales of FMCG products like biscuits and higher value buys such as cars fall sharply. In fact, despite the economic slowdown, certain discretionary spends don’t seem to have gone down. The India smartphone market grew 9.9% year-on-year (y-o-y) (read more). “Millennials are fond of new gadgets. This is a technologically advanced generation and they always want to stay up to date, even if it means going beyond their means. If they have the earning capacity, they believe that they will be able to pay it off, even if they have to borrow, but they don’t want to compromise on the quality of their lifestyle. It’s a lifestyle-driven generation and a consumption-driven market," said Amit Kukreja, founder of Amitkukreja.com, a financial planning firm.

Some of this demand is getting financed by loans and easy-to-get EMI options that dealers offer. Data from Zestmoney, a consumer lending platform, shows that over 40% of its customers routed their phone purchases through EMIs. The company has a user base of 5 million. “EMIs are fuelling this continued demand. Customers have more affordable EMI options today," said Lizzie Chapman, CEO and co-founder, ZestMoney.

The loan is easy to get, but should you buy the phone on an EMI?

The credit route

With the increasing number of fintechs offering easy-to-click deals, getting a loan is no longer difficult. Reports from various lending companies show that more and more people, millennials in particular, are making the smallest of purchases through EMIs. “Buying products on EMI works well for borrowers as the element of paying a huge amount upfront is eliminated. No-cost EMIs give the impression that no additional interest costs are incurred, but this is clearly a misnomer," said Aditya Kumar, founder and CEO, Qbera.com, an online lending platform. Kumar said under the no-cost EMI scheme promoted by several marketplaces, interest rate charges are included within the EMIs, with borrowers often having little or no clue of the actual repayment structure. “Purchases made under this provision can attract an interest of 15-24% a year," he added.

A 2018 report by CASHe, a digital lending company, showed that 23% salaried millennials took short-term personal loans to refinance individual EMIs. This says a lot about how borrowing has become ubiquitous and people are not shying away from credit unlike a few years ago.

“Schemes like the no-cost EMI option offer an incentive to consumers to make large purchases through easy and flexible options. Although the no-cost EMI scheme does involve an interest cost and many consumers are becoming increasingly aware of hidden interest charges, trends don’t particularly indicate a slump. Consumers are actively opting for these schemes to make purchases," said Kumar.

Should you EMI?

Taking loans, especially for discretionary and lifestyle expenses, during an economic slowdown may not be a good idea because there is too much uncertainty involved in terms of job stability and cash flows. Adding more liabilities could put you at the risk of falling into debt in case an untoward situation arises. “Taking on an EMI or loan is not a good idea in an environment of uncertainty. The scenario ahead looks bleak, so wouldn’t you want to save every penny for something essential like a job loss or sudden illness? If you are not sure of the revenue streams in the future, it’s best to stay clear of loans and EMIs. Keep in mind that a smartphone is not an asset; it’s a depreciating electronic gadget," said Deepali Sen, certified financial planner and founder partner of Srujan Financial Advisers LLP.

It is a good idea to understand the full cost of the loan and the phone (don’t forget to add the accessories and insurance you will buy along with the phone) to finance a depreciating asset like a smartphone and see if the spending is worth it.

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