0% EMI–An excellent mechanism and a good trap

There’s no such thing as free lunch. But marketers are promising exactly that with the 0% EMI schemes. You must have come across such deals especially while buying consumer electronics. The main claim of such schemes is to offer you an EMI scheme which will have

  no interest charges. This seems too good to be true, but in reality there are some really 0% Interest schemes. So what is the trap and how to know which schemes are really delivering a fully interest free EMI scheme.

Some few years back this was the most popular schemes for selling consumer electronics products especially with banks supporting and providing the finance. But RBI regulations advising banks to not indulge in such schemes have helped. The reason why the central bank decided to give a directive is because the scheme being promoted in a false manner. The problem with these schemes is mostly related to hidden charges. The way the charges are mentioned/categorised gives a false impression to the customer and making it difficult for the customer to have an informed choice.

Here are some hidden costs in the 0% EMI schemes:

1) Processing Fees: Such schemes typically asks for one-time processing fees for the loan. These are variable depending on the dealer/bank/purchase amount you are dealing with.

2) No Cash Discount: If you avail such scheme, any other discount provided by the dealer is not applicable. This is a real catch, since most of these 0% EMI schemes are promoted during festival period, when the dealers are willing to give lot of discounts to increase their sales.

3) Advance EMI/Down-Payment: These types of schemes typically asks for some part of the payment done in advance. In essence, you are not entitled for the entire amount of purchase to be converted into EMI.

4) Documentation Fees: Some offers ask your salary and if it does not meet a required parameter, they ask for certain documents. In such cases, an extra charge for document processing may be applied.

5) Availability on select models only: Sometimes the schemes are available only on select models/products. If this is the case, it surely indicates that the dealer wants to empty his inventory for these models which are probably old or not selling well.

6) Shipping charges/Installation charges: Sometimes dealers apply shipping/installation charges if you buy the product on 0% EMI scheme but no such fee if bought through cash.

7) Hidden conditions: Sometimes there are hidden conditions/restrictions while buying through 0% EMI scheme, which should be understood properly before signing the dotted line.

It is important to understand and calculate the real charges for such 0% EMI schemes before getting into one. As an example, if your purchase bill is Rs 36K, and availing 0% EMI scheme for eight months, with processing fees of Rs 1000 and forfeiting the cash discount of Rs 2000, the interest rate effectively turns out to be around 18.75%, definitely much higher than availing personal loans.

These schemes are not all that bad given the fact that the effective interest rate is still much less than using a credit card. Hence such schemes can be utilized by a consumer after carefully calculating the real rate of interest.

There are also some “real” 0% EMI schemes, where the manufacturer or the dealer absorbs the interest charges in favour of higher sales (may be for that specific period). So having an awareness is much better and wiser while availing such schemes.

Future of Credit Cards

Remember Aamir Khan in Ghajini giving credit card to the chaat-wala? Well, the credit cards have almost become ubiquitous at-least in the urban India and I think it wont be long before it would engulf the far-reaching rural areas including the chaat-walas. Although I do hate credit card, but there is no doubt that this is going to be the default mode of payment in future.

The credit card companies make a load-full of money sometimes not by ethical means but they are also spending a lot of money in the future technology of credit card which may be more secure and more useful for the end consumer. So what’s the future of credit card? Here are some glimpses:

1) Multi Account Credit Card

The Multi Account Credit Card has two buttons on its face each with an indicator light. So you can essentially have two accounts in the same card. You can also have a credit and a debit card rolled into one. The card contains a lithium-polymer battery inside can last four years under high usage. They're also fully waterproof,

 

2) The Hidden Credit Card

This card does not display all the digits of your account number and some digits are hidden. This credit card has a keypad and black-and-white display for six of the digits in the card's unique number. Once the correct PIN is entered on the card's four buttons, the missing digits are filled in and the card's magnetic strip is populated with data. Both the digits and the strip become blank again after a short time. If the card is lost, no-one can use it.

3) Contact Less Credit Card

These are essentially chip-cards that works on the RFID mechanism. The idea is that you do not need to swipe and you can just wave the card in front of a special RFID scanner who can charge your card quickly. The RFID chip can transmit a lot more information without having to dial in to a network. American Express says its ExpressPay transactions are 63 percent faster than using cash. I guess, if this technology works out, then the chip may be implanted in other devices like watches or cell phones (already available e.g. Nokia 6131 NFC) and who knows may be in the human body itself.

4) Citibank’s 2G Cards

The Citibank 2G cards are special cards that allow users press the request-rewards button before swiping the card for paying with their card points. The action of pressing the buttons changes the data imprinted on the magnetic stripe.

Check out the video for the demo of some of these cards

There are definitely lot of issues with the new technology that should be sorted before these become the de-facto credit cards. The key point for getting these technologically advanced cards relies in the adoption strategy by the millions of vendors who have already spent money for the infrastructure of today’s simple credit card. So they definitely would need some incentive to switch to advanced technology. Also the security is going to be utmost significance especially for contact less credit cards. I hope we see these soon in India, since I expect that these advance cards will bring more security to the end consumer.

Web Hosting Fraud and how to be cautious!!

I have been mulling over moving this blog to a self hosted website. The thought came to me after seeing many awesome blogs as self hosted (like chandoo or tipguy blogs). The flexibility and control provided by self-hosting is immense (see 10 reasons to self-host a blog) and I felt it could be like moving one step further in terms of my blogging interests. Although there are people who are very popular online without any self-hosting blog (Rashmi or Rohit) but for me I thought let me research a bit on self-hosting before I move this blog.

So I started searching and found a super beginner’s guide for starting your own website. I realized that essentially I need two things:

1. A Domain Name [Similar to say Company Name]
2. A Web-Hosting Subscription [Similar to Office Space for rent]

I searched and found that there are literally millions of companies providing both the services with variety of choices, options, features, claims and rates. Also to confuse you further there are several websites providing the top 10 web hosting company lists. And after reading so many websites on how to choose the web-hosting companies if you could manage to choose some company, and if you search about the review of that specific company, you will find that there are equal number of positive and negative review comments, leaving you totally exasperated.

But the worst is yet to come. After all this (apart from sending emails to some folks like chandoo or find who-is information about popular self hosted blogs), I zeroed on to BlueHost web hosting company. I ignored the review comments and focussed on least price hosting company (I felt like gambling and thought let me taste the world of self-hosting). The one thing good about BlueHost is that they give the domain name registration free and the domain name is registered in your name. A lot of companies cheat by registering domain name in their name and then it is difficult for the customer to move away from them. Imagine you want to start a company and when you ask an agent to register the company, he did register in his name rather than yours. It amounts to blatant cheating, but who reads the “Terms and Conditions”.

One such cheating I came across when I tries to sign-up with the BlueHost company. Before I entered the credit card details, I decided to click on Terms and Conditions.

I was shocked to realize that once I enter the credit card details, the BlueHost can charge me on recurring basis unless I go and tell them not to charge. The terms indicate that all responsibility lies with me and they are legally free to charge me, if I fail to inform them that I no longer want their services.

When I searched the other hosting options, every single provider has the same mechanism, which virtually ensures that you stay with them forever. A recurring payment (also known as a 'continuous payment authority') is an automatic regular payment which is set up using your debit or credit card.

The biggest problem with recurring payments is that only the company can stop the recurring payment and you can not. So if you have to stop the payment, the onus is on you to convince the company to stop the payment. The company may put additional conditions or charges for cancellation of such recurring services. The worse is that sometimes it may not be easy for you to get the company to cancel the recurring payment.

The other aspect of recurring payment is that the company keeps your credit or debit card information on their systems for charging in recurring fashion. This may lead to privacy issues

BTW, if you think you are smart ass and can cancel the credit card to prevent the recurring charges you are wrong, since that makes you liable for legal charges by the company whom you have authorised for this recurring charge. Also if you try to tell the bank to stop payment to the company, bank will only act if you can prove that you did not authorise the company and it is a fraud. In any other case bank is obliged to honour the recurring credit card charges.

The only option for you is to work through the company by going through the cancellation policy that you probably did not read while signing up.

The one option that I think can work is to use virtual credit card (for e.g. HDFC NetSafe) which allows to create a virtual credit card with a chosen limit and validity. The other option is to use a pre-loaded card for such transactions which has a limit of transaction that you have pre-loaded. But be aware that this does not free you from the legal binding about accepting the recurring payment. It only ensures that the company has to chase you for the next recurring payment and not you to stop that recurring payment.

My Advice: Whenever using credit card (typically online), ensure to read “Terms and Conditions” specifically looking for recurring payment and cancellation policy.

As for my self-hosting journey, I need to find a company who will accept just a one time payment and do not force me to enter a recurring payment mode.

Credit Card Visual History

Source: The Big Money

The first credit card was created, as you would guess, due to an embarrassing situation faced by Frank McNamara, while eating out at a restaurant. When the check arrived, he realized, he did not brought his wallet. This gave birth to Diner’s Credit Card.

Then came the BankAmericard from Bank of America. The earlier versions were flimsier and hence American Express came up with first real plastic credit cards.

 

Then came the credit cards with all its variants since various players saw a great business opportunity.

Check out the The Big Money for the entire pictorial history of credit card.

Another interesting video that presents how the American credit card industry became so pervasive, so lucrative, and so powerful.

This is a video from Frontline - “Secret History of the Credit Card (2004)”.

I could not find the history of credit cards in India, but it looks like that Central Bank of India, launched the first credit card in India called “Centralcard” in the year 1980.

It would be interesting to know if we can get hold of the picture of the first credit card that was launched in India. Anyone?