Buy, rent, or pay an EMI?

BUY­ING AP­PLI­ANCES While young earn­ers mov­ing to new cities gen­er­ally tend to go for EMI or rent while pur­chas­ing ap­pli­ances ow­ing to the lack of a lump sum, those who are set­tled mostly go for a di­rect pur­chase

Hindustan Times ST (Mumbai) - - WORLD - Re­vati Kr­ishna re­vati.kr­[email protected]

My hus­band and I saved up to buy a smart HD TV. We didn’t want to go for EMIS as there isn’t much info on it. ANKITA PRIYADARSHINI, 31, a for­mer hu­man re­sources ex­ec­u­tive and cur­rently a painter We rented a fridge and wash­ing ma­chine as combo deals are cheaper and shared it among four of us. It’s con­ve­nient and cheap.

MUM­BAI:BUY­ING ap­pli­ances may give you the sense of own­er­ship, but it may only be ad­vis­able when you are sure that there are fewer chances of you fre­quently mov­ing be­tween cities as it adds the bur­den of re­sale at a lesser value or trans­porta­tion costs.

FIRST SAVE, THEN BUY

For New Delhi-based Ankita Priyadarshini, 31, who is a for­mer hu­man re­sources ex­ec­u­tive and cur­rently a painter, pur­chas­ing a smart TV is on the cards. “My hus­band and I want to buy a smart HD TV within ₹60,000. We be­gan sav­ing some amount in our bank ac­count to cre­ate the lump sum,” said Priyadarshini. “We did not want to go for equal monthly in­stal­ments (EMI) be­cause of in­for­ma­tion deficit on the specifics of it.”

In­for­ma­tion on how EMI works, rate of in­ter­est, num­ber of in­stal­ments, size of in­stal­ment and min­i­mum pur­chase amount, etc, should be more eas­ily ac­ces­si­ble, said Priyadarshini. “When we buy smaller, cheaper ap­pli­ances such as an oil ra­di­a­tor we bought re­cently, which cost around ₹10,000 to ₹12,000, we do not re­quire an EMI op­tion,” she said.

For Priyadarshini, any­thing less than 15% of her and her hus­band’s monthly salary does not re­quire an EMI op­tion. For the up­com­ing TV pur­chase or sim­i­lar pur­chases, Priyadarshini saves up for months. “As we live in a rented house now, the rent be­comes an ex­pen­di­ture too. Hence, 80% of our salary goes into the reg­u­lar monthly ex­pen­di­ture and in­vest­ment ex­penses. What re­mains of it, we save in our bank ac­count as liq­uid money for medium-term ex­pen­di­tures and buy­ing ap­pli­ances is one of them,” she added.

TREAD CARE­FULLY WITH EMI

For those who just started work­ing, a ready lump sum may not al­ways be avail­able eas­ily and pur­chas­ing any ap­pli­ance one wants can be­come a fi­nan­cial bur­den. Take San Fran­cisco based­sr­ishti Bisen, 25, a for­mer soft­ware en­gi­neer for ex­am­ple. Bisen wanted to buy a speaker worth ₹18,000 when she was liv­ing in In­dia last year, but did not have the lump sum amount as she had just be­gun her pro­fes­sional life. “I had to ap­ply for a credit card to pur­chase the speak­ers on EMI even though I did not even need one. My EMI amount was ₹1,414 and I fin­ished pay­ing the whole amount in 12 in­stal­ments,” said Bisen.

Although her credit limit was ₹15,000, the to­tal buy cost her ₹18,000 as she had to pay a one-time penalty of ₹1,200. “The price shown to me at the time of pur­chase was ₹16,200, but with bank charges and the penalty, my to­tal cost went up to ₹18,168, which was way above the in­tended price.” Bisen said she may have had a slight idea of bank charges and that the to­tal cost would end up be­ing more than the max­i­mum re­tail price (MRP), but the un­avail­abil­ity of a ready lump sum made her opt for EMI.

“These days, sales sea­sons ex­ist through­out the year with EMI of­fers, but young­sters need to en­gage in need-based pur­chases. For ex­am­ple, pur­chas­ing an ex­pen­sive smart LED TV be­comes a lux­ury buy and an EMI of­fer may seem lu­cra­tive, but your fu­ture cash flow will get af­fected and in­vest­ments that you had lined up will get com­pro­mised,” said Deepali Sen, founder of Sru­jan Fi­nan­cial Ad­vis­ers LLP.

I had to ap­ply for a credit card to buy the speak­ers on EMI although I didn’t need one. The to­tal amount in­clud­ing bank charges ex­ceeded my credit limit and I ended up pay­ing way more. SRISHTI BISEN, 25, for­mer soft­ware en­gi­neer

TO RENT OR NOT

For some people, the step­ping stone of their work life in­volved mov­ing to mul­ti­ple houses, es­pe­cially in metro cities where there is an added bur­den of higher rent. “In my three years of work­ing in Mum­bai, I have al­ready lived in three dif­fer­ent ac­com­mo­da­tions and if I had bought my ap­pli­ances, then mov­ing around with them would have hiked my trans­porta­tion ex­penses. Also, shar­ing the cost of the ap­pli­ances with new room­mates can be tricky,” said Mum­baibased 24-year-old Prarthana Mazumder, a for­mer syndication ex­ec­u­tive.

“We rented a fridge and wash­ing ma­chine as combo deals are cheaper and shared it among four flat­mates. The cost would come around to ₹1,360 a month, which we di­vided amongst our­selves,” she said. The de­posit amount does not seem to be that bur­den­some as one gets it back, said Mazumder. How­ever, she and her flat­mates did have to pay a penalty be­cause they had to ter­mi­nate the mem­ber­ship be­fore the stip­u­lated time pe­riod.

The de­posit for them was ₹3,500 and they paid a penalty of ₹1,000. “Fi­nanc­ing the rent is also not much of a has­sle as around 33% of my monthly re­mu­ner­a­tion went into my ac­com­mo­da­tion rent and fur­ni­ture rent,” she said.

It can be con­ve­nient too. When Mazumder moved again, they had to ter­mi­nate the mem­ber­ship and go for a new one for per­sonal rea­sons, but rental web­sites also pro­vide free trans­porta­tion for the rented ap­pli­ance in case one con­tin­ues with the same mem­ber­ship. “The prod­ucts are new and of good qual­ity which can be re­turned eas­ily. Even now, I will be mov­ing to New Delhi and I don’t have to face the bur­den of sell­ing my fur­ni­ture,” she said, adding that she only wants to buy fur­ni­ture when there are lesser chances of mov­ing around. Ac­cord­ing to Pawan Agrawal, founder of In­vest­guru.in, a fi­nan­cial ad­vi­sory firm, rent­ing is a good idea if one knows that the us­age of the ap­pli­ance is not per­ma­nent and one may be con­stantly mov­ing.

Ex­perts think that such pur­chases and the de­ci­sion of the pay­ment mode is need-based. “When it comes to big­ger ap­pli­ances, it is al­ways ad­vis­able to buy only those which are re­quired; in that case you can ei­ther pay up­front or if there is no lump sum, it can be bought on EMI as well,” said Agrawal. “If you know you will be set­ting up a house, you can park some money in ul­tra-short term funds, fixed de­posits, short-term debt funds or liq­uid funds as your money will be safer and you might get con­sis­tent re­turns of around 7-8%. You can then redeem your in­vest­ment when­ever you have to pur­chase the prod­ucts.”

WHAT IS IT?

It is the num­ber of the claims that the in­surer has paid when­ever the claims are filed in case of non-life in­sur­ance, and on the death of the pol­icy holder in case of life in­sur­ance. For ex­am­ple, in case of life in­sur­ance, if an in­surer has set­tled 90 out of 100 claims that are filed when a pol­icy holder dies, the claim set­tle­ment ra­tio of the life in­surer is 90%.

HOW DOES IT WORK?

“A high claim set­tle­ment by count sug­gests that claims are likely to get paid. A high claim set­tle­ment by value sug­gests that even the large claims get paid ef­fec­tively. Ide­ally, an in­surer should have set­tle­ment ra­tios of over 90%,” said Kapil

Me­hta, founder of Se­curenow.in.

PRATIK CHORGE/HT

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