Amazon's EMI discount offers - What's the catch?


sharktale1212

Well-Known Member
Adept
On Amazon homepage they are showing an EMI discount offer. I tried adding a phone to cart to see what happens. And then applied my ICICI debit card. It shows 3 months No EMI and the price difference is 1500 - the discount price. Though I am hesitant about buying stuff so I can't help but wonder if there is a catch to this?
 

Parantap

New Member
Disciple
Did you mean 3 months "no interest" EMI ? Usually there is no catch as such, although some firms like Bajaj Finserv might charge a flat processing fee on the "no interest" EMI transactions. For bank's it's just a way of increasing customer loyalty and stickiness.
 

Party Monger

Well-Known Member
Veteran
The catch is that these are Debit car emi discounts and almost no one is elegilble for debit card emis. Especially that ICICI one. Its only select few that are pre- approved. Basically they can have offer running all year without giving actual discount to fill offer tab.
 

sharktale1212

Well-Known Member
Adept
Did you mean 3 months "no interest" EMI ? Usually there is no catch as such, although some firms like Bajaj Finserv might charge a flat processing fee on the "no interest" EMI transactions. For bank's it's just a way of increasing customer loyalty and stickiness.
Yep I meant no interest EMI. There is Rs. 99 flat processing fee too.
There is no catch. They do waive of interest that would have been charged for that period.

I am just wondering if there is GST involved on the EMI payments as well? In which case the price goes back up, no? For example, the OnePlus Nord 8/128 version is 27,999 with the "no interest" EMI (691.25) and discount (1500) it comes out to 25807 for the 8833 x 3 months EMI.

Then I pay 8833 + 345 (interest) + 18% GST on Interest? In which case the offer is more like 1100?
 

Parantap

New Member
Disciple
Apart from the GST, processing fee etc. which are minor, there are other aspects of these transactions which might not be apparent at first look
1) Once you purchase the primary product, the FI might ask for your contact details and use it to cross sell insurance, protection plans etc.
2) Since they are essentially extending you credit (albeit interest-free) these are reported to the credit bureaus and might affect your score negatively (just like a personal loan would)
 

Julian

om nom nom
Veteran
EMI has quite a few variables which may mean you end up saving less than you think. Savings nonetheless.

But what i really can't understand is the 10% off instant discount on certain debit cards (no emi). I mean I understand promoting your bank/card etc. but how can they afford 1-1.5k off for each customer? There literally is no catch to the customer here. It's not even a deferred cashback, but a real, instant discount. How does this work?
 

6pack

Well-Known Member
ex-Mod
but how can they afford 1-1.5k off for each customer? There literally is no catch to the customer here. It's not even a deferred cashback, but a real, instant discount. How does this work?

This is like insurance payouts. The amount of people taking these EMI's is far less than those who buy on credit or cash. Only those who cannot afford the full payment will take the EMI route. Even if it costs 1k extra to them via EMI, they would have still bought it. It's a consumption world now. People have become addicted to buying everything on cards.
 

Julian

om nom nom
Veteran
This is like insurance payouts. The amount of people taking these EMI's is far less than those who buy on credit or cash. Only those who cannot afford the full payment will take the EMI route. Even if it costs 1k extra to them via EMI, they would have still bought it. It's a consumption world now. People have become addicted to buying everything on cards.
I was asking about the non-emi but instant 10% discounts on debit cards.
 

6pack

Well-Known Member
ex-Mod
I was asking about the non-emi but instant 10% discounts on debit cards.
Probably cross subsidised by some other products. How many people actually buy directly through debit cards? Those who have high amount of cash sitting idle in their banks and who have good daily debit card withdrawal limits. You can reduce it further by how many of such people actually require those items in question.
Let's say fridge is selling for 2.5k instant discount on debit card. How many people will go to buy a fridge when they already have a fridge at home? Plus how many will shop online when majority of sales happens through stores where they can get discount on cash too?

These banks have already seen how much a debit card is used during day/weekdays/months etc. They are promoting these for a reason. I don't know the reason though.
 

skoka123

Well-Known Member
Adept
OK. Here's some insight into these cashback and zero cost EMI stuff. Once I was going to buy a Refrigerator at Bajaj Electronics (in Hyderabad). The original price was 1.96 L. After lot of bargaining I finally got it for 1.01L with zero interest EMI option from Bajaj Finance. I asked the store manager for further discount as I am willing to pay the whole amount in cash but he refused any further discount saying that he has no benefit even I pay it upfront. I was confused. Then, I asked Bajaj Finance guy (they have a small team inside the store selling EMI Cards and processing loans etc) how Bajaj can afford to give zero interest EMI. The secret is that it is the Manufacturer who has tie ups with the finance companies. So, here how it works.

Assume for a product worth 1,20,000 with a 12 months emi at flat rate 10% interest rate the average per month interest would come to 1,000 (assuming flat rate and not going into the actual EMI calculations for simplicity sake).
Average monthly EMI would be 1,20,000 / 12 = 10,000 Principal + 1,000 Interest.
EMI = 11,000.
Finance institution (Bajaj Finance in my case) would get 10,000 from me and 1,000 from the manufacturer. Most often the interest component from the manufacturer is paid upfront hence they pay less than 12,000 to the financial institution. I am not going into those details to avoid complicated calculations.

The store (Bajaj Electronics) would get the full 1,20,000 upfront from the finance company.

So, in reality it is the Manufacturer who is promoting the zero interest EMI and not the financial institutions. This is the reason why you only see few credit card companies and banks are part of these EMI options as it is not possible to have such a tripartite agreement with all the credit card issuing financial institutions unless there is an agreement with the gateways (VISA / MasterCard etc).

I hope this clarifies the doubts.
 

rdst_1

Well-Known Member
Veteran
I hope this clarifies the doubts.

Spot on mate. Does anyone remember that the courts/govt decided that no financial institution could offer 'No cost EMI' anymore. This was the exact same reason for it. The interest component was already added to the price of these products (especially for appliances and TVs) and so even people who didn't opt for 'No-cost EMI' ended up paying the interest. But the companies are continuing to do the same by offering the interest component as upfront discount now. However, this is now costlier for the customer than the older method because now he ends up paying the extra 18% GST on the interest component. I still can't fathom how can this govt get away by applying tax on interest but, just like it is true for the middle class, the no of credit card holders is so small that they can still get away despite exploiting them.
 

t3chg33k

Well-Known Member
Disciple
I had never done an EMI transaction before but there was a 10% instant discount on ICICI debit card for EMI transactions only, so I went ahead with it as an experiment as the item cost was about 10k. The alternative was to go for 5% cashback on my Amazon Pay card, so it was going to be a better deal anyway.

The upfront amount paid was inclusive of 10% discount and the interest, so I paid about 8800 for it. There was a buck deducted from my bank account at the end of last month and as per the EMI schedule, the 3-month No-EMI was supposed to start in August itself. However, no deduction has happened till date so waiting to see what happens at the end of this month.

I will prepay it as soon as the first deduction happens and with 199 processing fee , GST and 2% foreclosure charge, I should still end up spending about 9200, a net discount of 8% and better than the 5% alternative.
 

vivek.krishnan

If you cant see the green dot, I'm offline :P
Veteran
On Amazon homepage they are showing an EMI discount offer. I tried adding a phone to cart to see what happens. And then applied my ICICI debit card. It shows 3 months No EMI and the price difference is 1500 - the discount price. Though I am hesitant about buying stuff so I can't help but wonder if there is a catch to this?

For DC EMI AFAIK there is a processing fee. Additionally, GST on the waived interest amount. Apart from that nothing.

I think these are basically ways to attract the card holders and first time shoppers.
Post automatically merged:

OK. Here's some insight into these cashback and zero cost EMI stuff. Once I was going to buy a Refrigerator at Bajaj Electronics (in Hyderabad). The original price was 1.96 L. After lot of bargaining I finally got it for 1.01L with zero interest EMI option from Bajaj Finance. I asked the store manager for further discount as I am willing to pay the whole amount in cash but he refused any further discount saying that he has no benefit even I pay it upfront. I was confused. Then, I asked Bajaj Finance guy (they have a small team inside the store selling EMI Cards and processing loans etc) how Bajaj can afford to give zero interest EMI. The secret is that it is the Manufacturer who has tie ups with the finance companies. So, here how it works.

Assume for a product worth 1,20,000 with a 12 months emi at flat rate 10% interest rate the average per month interest would come to 1,000 (assuming flat rate and not going into the actual EMI calculations for simplicity sake).
Average monthly EMI would be 1,20,000 / 12 = 10,000 Principal + 1,000 Interest.
EMI = 11,000.
Finance institution (Bajaj Finance in my case) would get 10,000 from me and 1,000 from the manufacturer. Most often the interest component from the manufacturer is paid upfront hence they pay less than 12,000 to the financial institution. I am not going into those details to avoid complicated calculations.

The store (Bajaj Electronics) would get the full 1,20,000 upfront from the finance company.

So, in reality it is the Manufacturer who is promoting the zero interest EMI and not the financial institutions. This is the reason why you only see few credit card companies and banks are part of these EMI options as it is not possible to have such a tripartite agreement with all the credit card issuing financial institutions unless there is an agreement with the gateways (VISA / MasterCard etc).

I hope this clarifies the doubts.

Very much true for most of the expensive products - the actual cost of the no cost EMI is built into the price itself.
 

skoka123

Well-Known Member
Adept
I had never done an EMI transaction before but there was a 10% instant discount on ICICI debit card for EMI transactions only, so I went ahead with it as an experiment as the item cost was about 10k. The alternative was to go for 5% cashback on my Amazon Pay card, so it was going to be a better deal anyway.

The upfront amount paid was inclusive of 10% discount and the interest, so I paid about 8800 for it. There was a buck deducted from my bank account at the end of last month and as per the EMI schedule, the 3-month No-EMI was supposed to start in August itself. However, no deduction has happened till date so waiting to see what happens at the end of this month.

I will prepay it as soon as the first deduction happens and with 199 processing fee , GST and 2% foreclosure charge, I should still end up spending about 9200, a net discount of 8% and better than the 5% alternative.

What is the benefit of foreclosing the loan? Isn't money in your savings account still accruing interest? Assuming your EMI is 3K at 4% interest in your savings account you are pay 6K upfront to foreclose. In effect you are losing bank interest of (3000 x .04/12 + 6000 x .04/12 ) = Rs. 30.
 

t3chg33k

Well-Known Member
Disciple
What is the benefit of foreclosing the loan? Isn't money in your savings account still accruing interest? Assuming your EMI is 3K at 4% interest in your savings account you are pay 6K upfront to foreclose. In effect you are losing bank interest of (3000 x .04/12 + 6000 x .04/12 ) = Rs. 30.

No, the foreclosure is 2% of outstanding amount. So if you foreclose after the first deduction, it will be (let's say) 120 bucks on 6k outstanding. Interest payment over next 2 instalments will be 150 + GST or about 180 bucks. With 30 bucks interest income, you will still save another 30 bucks.

Of course in this case, the amount is too small to bother. But, for larger EMIs with 1% or even lesser foreclosure charges, it will make a huge difference.
 

skoka123

Well-Known Member
Adept
No, the foreclosure is 2% of outstanding amount. So if you foreclose after the first deduction, it will be (let's say) 120 bucks on 6k outstanding. Interest payment over next 2 instalments will be 150 + GST or about 180 bucks. With 30 bucks interest income, you will still save another 30 bucks.

Of course in this case, the amount is too small to bother. But, for larger EMIs with 1% or even lesser foreclosure charges, it will make a huge difference.
You seem to have got it all wrong. Not only are you losing your Savings bank interest income if you prepay you are also paying the Rs 120 on your foreclosure. In effect you are losing Rs 150. In case of Zero EMI you will only pay the GST on the interest and not interest + GST. So, interest of Rs 150 will mean .18% x 150 = Rs 27. In effect you will be losing foreclosure charge + loss of savings account interest - GST on EMI interest = 120 + 30 -27 = Net loss of Rs 123 if you foreclose.
 

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