Deciding the Best Payment Option for Your Purchase

You want to buy a laptop online and you don’t want to look beyond Amazon and Flipkart for this purchase. Let’s further assume that, on both the sites, the laptop is listed at the same price. However, there are discounts and cashbacks on specific cards. In such a case, unless you have a preference for a specific e-tailer, you will go with the site that offers the lowest price after discount/cashback on specific cards. That’s right but even these simple choices may sometimes not be so simple.

Prefer Discount over Cashbacks

I prefer discounts over cashbacks.  Why?

Because discounts are quite objective. You can see the benefit straight away. Or even if there are conditions, you see the net impact before making the payment. For instance, you would focus on a 10% discount but the fine print would cap the discount to Rs 1,000.  So, if you are planning to buy a laptop worth Rs 1 lac, the discount would only be Rs 1,000 (and not Rs 10,000). Net cost after discount = Rs 99,000. With discounts, the good part is that you know the net cost before you make the payment.

Cashbacks, on the other hand, can be tricky. The cashbacks are credited later (sometimes after a few months). Hence, if you overlook or misinterpret a condition, you can bid the cashback goodbye.

A bird in hand is worth two in the bush. Hence, if I had a choice between 5% discount and 7.5% cashback, I would opt for the 5% discount.

My opinion might change if we are looking at co-branded cards such as ICICI Bank Amazon Pay credit card or Flipkart Axis Bank credit card. The cashbacks terms on these cards are relatively crisp (or so I think). Thus, there is a lower chance of a negative surprise. Plus, the cashback is added to your account when the next card statement is generated.

Let’s Complicate Matters a Bit

You don’t want to make the full payment for the purchase right away or by the next bill due date. You want to spread the payment over a few months by way of EMIs.

A caveat here: Credit can make it easier to buy items. You get at least until the next statement due date to pay for the purchase. If you do not want to pay by then either, there is always an option of EMIs. Paying Rs 100,000 upfront may look daunting to many of us but Rs 4,754 per month (at 13% p.a.) for the next 24 months looks easily manageable. Of course, there is a cost involved in the form of interest. You pay Rs 1.14 lacs to close the loan. But a bigger problem lurks, that of spending beyond your means. And if this becomes a habit, you can get into debt trouble. Therefore, while credit is not bad, you need to be responsible with credit.

Coming back, let’s consider a hypothetical example.

  1. Flipkart offers 5% discount on Credit card A (subject to a maximum of Rs 1,500) and you have an option of No-cost EMI.
  2. Amazon offers 5% cashback (unlimited) on Credit card A. However, if you opt for the EMI (no-cost or interest based), you won’t get cashback. Now, let’s say you can ask the bank later to convert your purchase into EMI at 13% p.a. Over and above, there is a processing fee of Rs 250 (incl. GST).
Purchase Value60,000
Discount (5%) (capped at 1,500)1,500
Net Purchase value

(to be used for EMI calculation)

EMI Tenure6
Interest Rate0%
Processing Fee (incl. GST)0
Net Cost58,500
*The impact of GST on interest not considered


Purchase Value60,000
Net Purchase value

(to be used for EMI calculation)

EMI Tenure6
Interest Rate13%
Processing Fee (incl. GST)250
CashBack (5%)3,000
Net Cost59,545
*The impact of GST on interest not considered

As you can see, the net cost is slightly lower in Flipkart. Hence, you are better off going to Flipkart. Note the result can change with a minor tweak in any of the parameters.

Even in this example, discount on Flipkart is capped at Rs 1,500 while Amazon purchase enjoys unlimited cashback of 5%. Advantage Amazon. However, the cost of interest tilts the outcome in favour of Flipkart. As mentioned above, be sure about cashback conditions beforehand.

If the no-cost EMI option for this purchase was available on Amazon, it would have trumped Flipkart.

Similarly, you could conceive of many scenarios. The sales prices could be different after discount/cashbacks but the app with the higher list price offers a no-cost EMI option and the app with the lower listing price offers only an interest-based EMI option. Remember you don’t have to opt for EMI at the time of purchase. You can also ask your bank later to convert the purchase cost into EMIs.

I won’t go into all the possibilities. Trust you to complete those calculations. The good part is that the playbook for evaluation is exactly the same. You just have to focus on the net cost. The tenure of EMI will be a function of your cash flows. If you cannot afford to pay an EMI of Rs 4,000 per month, choose a tenure that gets the EMI in the comfortable range.

And yes, don’t borrow what you can’t repay.

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