With the festive season around the corner, you may be readying to splurge, most likely using your credit card, on that camera or LCD television you have been eyeing for a long time. But a credit card transaction is no longer just swiping the card and settling the amount at the end of the billing cycle. Banks and consumer durables financiers offer several ways for using it.
HDFC Bank is offering its Smart Revolve Program to ‘select customers’. It is a limited-period offer (August 1 to December 17), launched as an incentive for customers incurring retail expenses. For any carry forward amount, the bank would levy a flat charge vis-à-vis the interest typically charged. This charge would vary on the basis of the amount carried forward and the equivalent charge for each slab will differ. So, one has to pay a flat charge of Rs 50 for Rs 100- 5,000, Rs 80 for Rs 5,001-10,000 and so on monthly.
This works out cheaper than the carry forward charges levied otherwise. For example, if you carry forward Rs 15,000, under the programme you would pay a charge of Rs 150, that is, one per cent of the total amount. However, if you were to pay the regular 40 per cent annual revolving charges, you would end up paying about three per cent interest monthly (almost Rs 450 in this case).
The catch here is: As the offer is for a limited period only, you would have to settle your bill completely by December 17. Else, be ready to pay the regular interest charges.
But, almost all banks give the option of converting credit card dues in equated monthly instalments (EMIs) today. So, any transaction upwards of Rs 5,000 can be paid through EMIs, of over 6, 12, 24, even 36 months. If you are unsure of your ability to clear the entire credit amount within two-three months, you can opt for it. But, of course, you will have to pay a processing fee of about two per cent of the entire amount and a monthly interest cost of almost 1.5 per cent for availing of the option.
So, if you make a purchase of Rs 25,000, your EMI payable would be Rs 4,425 over a six-month period. You will incur an additional cost of almost Rs 2,050 (interest = Rs 1,550 and a one-time processing fee of Rs 500). Comparatively, had you opted for the Smart Revolve Program and carried forward the entire amount, you would have had to pay Rs 300. You also have the option to start settling the amount in tranches over the three-month offer period. In this case, the charges would come down and the amount be significantly lower.
Alternatively, banks also have tie-ups with select merchant establishments, especially electronic stores, where high-ticket sales are likely to take place. Purchases at these stores can be converted into EMIs at zero interest. That is, the interest will be waived entirely and only the processing charges would be applicable. The only clause here is: You will have to make a down payment, more commonly known as advance EMIs, equivalent to EMIs for two-three months.
This is similar to the zero interest finance option offered by several consumer durables financiers. Rakesh Makkar, former CEO, Future Money, says: “The credit card option is much simpler than zero-interest finance schemes. There is no paperwork or know-your-customer compliance involved, unlike in the latter case.”
However, Kartik Jhaveri, director, Transcend Consulting, is quick to caution. “Such schemes can be potent debt traps. Consumers should be careful, as a single slip in the repayment schedule can mean a high interest rate, which would be compounded.” According to Jhaveri, a zero interest scheme will augur well, provided you pay your dues diligently, on time.
