Buying on EMI/Personal Loan v/s Buying on RD.

emi vs rd

Now days when we want to purchase a Product (phone, laptop, bike for personal use) or go on a vacation we borrow money. Either through Credit Cards or take a personal loan. Because of same we incur additional charges.

In this blog I will share details why you should not purchase on EMI/ Personal? Also I will share with you how you can buy this thing by starting Recurring Deposit (RD).

Disadvantage of Buying on EMI/ Personal Loan

Interest & Other Charges:

  • When you buy Product or Services through credit card & personal loan you have to pay additional cost in form of Interest, GST on Interest, Processing fees & Insurance (in some cases).
  • In case of No Cost EMI on credit card, GST is still charged. Check this video in which I have explain on No Cost EMI.

Bad Spending Habit.

It is also more likely that when you become habitual to EMI and Personal loan you are more likely to purchase things you don’t want. And that lead to bad spending habit.

“If you buy things you do not need, soon you will have to sell things you need.”

― Warren Buffett

Check out this example, where a person wants to buy a Mobile. And the details are as below

  • Worth: Rs. 50000
  • Monthly contribution: 5000
  • RD Interest Rate: 5.5%
  • Time: 10 Months (5000*10)

EMI details are as follow

  • Loan Amount: Rs. 50000
  • Interest: 15% (including GST)
  • Period: 12 Months
  • Process Fees: Rs. 1000 (2% of Loan)
emi vs rd
Calculation for EMI vs RD

As you can see from above you will save Rs. 6433 or almost 13% on spent of Rs. 50000. Saving is due to two reasons, first being due to interest & processing fees and second due to interest earn due to RD.

Advantages of buying through RD

Saving on Interest & Other Cost:

A person can save huge % of amount on the interest cost, GST on same & Processing fees.

Credit Score is Saved.

Many people buy thing when they don’t adequate flow have money. And due to this there are good chance they will not pay their EMI on Time, leading to negative effect on there Credit Score. If you accumulate money and buy then there is no chance of such negative impact on your Credit Score (CIBIL).

Exceptions

  • Home loan and Car loan are exception to this concept. In coming blog I will also share with you how Home Loan is Good Loan/EMI.
  • Also if you want to buy certain product or services for your Business then this model is not advisable as you may loss on business opportunity.

The reason Recurring Deposit (RD) is selected, because it is one of the least risk investment. If we invest in stock market then there is risk on capital and hence the same should be avoided as our goal is short term.

Do let me know in comment your view on the same.

Video on EMI Vs RB

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