Equated Monthly Installments(EMI)

Bikram is a huge fan of bikes and wanted to own one since he was a teenager. Bikram,a recent graduate,was  hired by a multi-national company(M.N.C) .He was quite happy as he soon would be able to purchase A R15. Bikram felt that he was independent and decided to purchase the bike.The bike was priced at around  INR 1,20,000 ,a sum of INR 30,00 was paid by him down payment and had to pay 17ooo per month for the next 6 months.Bikram was quite happy that he was able to buy the bike he wanted to and that he didn’t have to wait till the time that he had the full amount.

Bikram  is just an example of the current generation which is credit savvy .EMI gives you the power to buy the items you couldn’t afford to pay at once  so its a very nice tool to have with you .The companies offering the EMI have a scheme which will display the time period ,items offered for EMI and amount of EMI to be paid for that interval.It gives us the feeling that we can afford each and everything and that is one of the major reason why people are so hung up on it.It is a very feasible way as you can pay as you earn. It has become a huge business over the years .

The fascinating fact about EMIs is that it  makes everything available on this earth  looks very affordable. When people are presented with EMI offers they  do not see the total cost which they would be end up paying to the company offering the plan . Ability to buy anything is the reason that most are prompted to buy things they really don’t need  or cant simply afford.This is where the cons of EMIs lies as people forget to calculate the cost borne while opting for this scheme.

• EMI prompts us to purchase things that are outside the must have boundary which usually people can’t afford.. It ultimately leads us to lose control over our spending
• EMI has hidden costs and costs interest so it is more expensive then going to the store and buying it with cash.For example; Bikram ended up paying 2000 extra per month and total of 12,000 as interest fees.
• Apart from the interest incurred most credit card companies charge a processing fee when you opt for an EMI scheme.
  
• The non-payment of an EMI will result in you being charged with the normal interest of anywhere between 24%-36% for non-payment along with the late payment fee and taxes
• EMI offering company which has given the loan to you will most likely have a foreclosure penalty. This means that if you have the cash and want to pay off the entire amount before the completion of the total number of EMIs then you can do so only after paying a rate of 2.5%-3% of the outstanding principal amount.

As you can see, even though an EMI option may feel like light on your pocket there are several costs attached to it. You must therefore be careful and evaluate the offer on your hand before you decide on it.Always read the terms and conditions properly .Calculate the extra cost involved and judge by yourself if your purchase as well as the price is justified and then only make a purchasing decision.Also  see if the purpose if for investing or for purchasing ,if it is for investing purpose and you are sure that you can earn more than the interest go for EMI otherwise please do carefully consider your decision.

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