Retailers, builders and lenders, among other players, are going all out to lure buyers this festive season. However, before you reach for your wallet, read between the lines of the offers to avoid getting short-changed.
ET Wealth points out five such traps to avoid.
1. No-cost EMIs
No-cost EMIs are the rage this season, with e-commerce companies, lenders and retailers offering such options. For example, you can buy a mobile phone worth Rs 50,000 using this option and repay this loan in 10 equal instalments of Rs 5,000 each. “These are triple zero schemes where there is no processing fee, down-payment or interest payout involved,” explains Anuj Kacker, Co-Founder and COO, Moneytap, a digital lending platform.
However, there are no free lunches. The Reserve Bank of India (RBI) had, in fact, banned 0% EMI in 2013, stating that such offers merely served the purpose of alluring and exploiting vulnerable customers. Since there cannot be an interest-free loan, there cannot be a no-cost EMI. “The cost is built into the sales price. If you were to make an upfront payment, you could be offered a discount, which would not be the case when you opt for EMIs,” says Navin Chandnani, Chief Business Officer, Bankbazaar.com, an online loan aggregation portal.
Then, there could be online offers where the sales price is the same irrespective of whether you are making an upfront payment or in instalments. “In such cases, you need not be concerned. The required adjustments (built-in discounts or interest charges) will be made in the invoice at the backend by the merchant,” adds Chandnani. The cost is typically borne by the brands in such cases. “The lending partner will recover the cost of extending a loan from the brands. This is also termed subvention fee,” says Kacker.
Before making a choice, enquire whether you can get a discount instead of the no-cost EMI offer. Also, find out if you need to make an upfront payment before the rest of the amount is converted into EMIs.
2. Low-cost loans
No-cost EMI offers apart, retailers and lenders also offer loans with interest free periods. “Enquire whether there is a processing fee involved. Usually, it is around 2%,” says Kacker. This option is useful for borrowers who do not want to lock-in their money. “For the convenience of spreading out the cost of say an electrical appliance worth Rs 50,000 over 10-12 months, Rs 1,000 (2% of the price) is a relatively affordable amount to pay in absolute terms,” he adds. Also, ascertain whether the ‘interest-free’ period comes with an expiry date. “Typically, low-value purchases come with an interestfree period of 15 days, post which an interest is charged,” says Chandnani.
3. Cashback offers
The key clauses to look for while availing a cashback offer are the maximum cap, minimum spend and the effective date. Also, read the fine print to understand how the minimum spend will be computed. “Let’s assume the minimum spend is Rs 3,000. The offer could be applicable to three purchases aggregating Rs 3,000 during the sale or only to a one-time purchase worth Rs 3,000. Both models exist,” says Kacker.
An instant cashback, applied at checkout while shopping online, is preferable to one credited after two or three months. Similarly, a 20% cashback may look attractive, but not if it comes with a ceiling of say Rs 1,500 when your total spend is Rs 50,000. “If you are using a credit card to pay, there could be a clause that says the cashback could be rolled back if card bills are not cleared on time,” says Prashant Bhonsle, Head, Student Loan and CMO, Incred, a digital lending NBFC.
4. Subvention schemes
A tripartite agreement between a developer, lender and borrower, this allows the latter to shell out 10-20% of the total cost initially. The EMIs are deferred till possession or a specified date, making houses more affordable. While the National Housing Bank has barred housing finance companies from participating in such arrangements, banks face no such restrictions. This apart, several builders have come up with their own versions of subvention schemes where the buyer has to book the flat after paying 5-20% of the agreed price. The rest is to be financed after possession. While these structures boost buyers’ affordability, the costs are 7-8% higher than regular rates. If affordability is not a concern, find out if you can negotiate an upfront discount on the price.
5. Freebies with home purchases
Developers shower freebies like modular kitchens, air-conditioners, and semi-furnished apartments to entice buyers. However, it is wise to drive a hard bargain for straight discounts on the rates instead. “Most developers have not announced hard discounts (officially notified and applicable to all) during this festive season as there are several factors preventing them from doing so,” says Anuj Puri, Chairman, ANAROCK Property Consultants. He attributes this to the NBFC crisis-induced liquidity crunch, NHB diktat to HFCs on subvention offers and high cost of raw materials.
“This year developers are offering ‘effective’ discounts by way of waiver of GST or even stamp duty and registration charges,” he adds. For home-seekers, this will result in cost reduction of 5-12%. However, if you are a genuine home buyer, you should try harder to get the price lowered. Developers may extend direct discounts to buyers showing serious intent to seal the deal.