Is loan the right way to buy a phone?

Mohit’s monthly salary is 35,000 rupees, and he wishes to buy an iPhone 15 Pro, which costs approximately 1 lakh 35,000 rupees. When he went to the mobile store to see the phone, the dealer told him that he could purchase the iPhone on installments. He would have to pay an annual interest of 24 percent. Mohit decided to buy the phone and informed the dealer that he would pay the money in 3 years. The dealer set up an EMI of a little over 5,000 rupees. Now, he will have to pay the EMI every month for 3 years.

Taking a loan for an iPhone in this manner is easy, but you should also understand that Mohit will end up paying more than 55,000 rupees in interest. For a 1 lakh 35,000 rupee phone over 3 years, he will have to pay a total of 1 lakh 90,000 rupees. The dealer provides the loan through an NBFC.

Mohit took the loan without much thought. If you are also considering taking a loan for a phone, make sure you understand the terms of the loan thoroughly before proceeding.

The loan offered by the dealer has become one way to purchase a phone. Besides this, there are several other ways to buy a phone using a loan. Let’s understand them.

First, let’s talk about consumer durable loans. These are personal loans that can be used to buy mobile phones. The annual interest rates for personal loans can range from 8.75% to 49.5%, depending on the bank or NBFC. You may also have to pay a processing fee of up to 6% with this loan. Hence buying a phone this way is potentially expensive.

Speaking of another type of loan, websites like Amazon and Flipkart offer the option of purchasing a phone on credit with the “Buy Now, Pay Later” feature. These platforms provide a credit limit ranging from 60,000 to 1 lakh rupees, allowing you to buy phones of higher value. The loan amount can be paid in installments over 3 to 12 months. The interest rates for this type of loan can vary and may range from 2% to 22%. There may also be a processing fee, and if you default on the monthly EMI payments, you might incur a late fee of 100 to 500 rupees.

On the contrary, when you buy a phone on EMI using a credit card, you may have to pay an interest rate ranging from 13% to 24%. Additionally, there may be a processing fee of 1% to 2.5% associated with credit card EMI purchases.

This raises the question of whether it is wise to buy an expensive phone through a loan. If you are taking a 2-3 year loan, you should consider how much extra you are paying for the phone over that period. Furthermore, you should also consider the resale value of your phone after 2-3 years. The value of a phone typically starts decreasing from the day you buy it. For instance, if you buy an iPhone 14 for 80,000 rupees today, its value might drop to 40-50,000 rupees within 6 months. Another important point to keep in mind is that a phone’s lifespan is generally 2-3 years, so by the time you finish repaying the loan, the phone may have become outdated, and you might need a new one. Therefore, it is essential to consider these factors before taking a loan to buy a phone.