Evaluating Payment Options during Checkout

While checking out from your favorite shopping app, you could get one of the following payment options on your credit/debit card or Buy Now, Pay Later (BNPL).

  1. Full payment (no cashbacks or discount)
  2. Interest-based EMI (without cashback or discount)
  3. No-cost EMI
  4. Upfront discount
  5. Cashback
  6. Upfront discount/cashback and interest-based EMI
  7. Upfront discount/cashback and no-cost EMI

Over and above, EMI-based schemes may or may not have processing fee. Different discounts on full payment and EMI payment on the same card. So many options. And it is so confusing. Which payment option is the best for you?

How Much Do You Pay in Total?

You net cash outgo will be:

For Full Payment

List price – Upfront discount – Cashback

For EMI purchase

Processing fee for loan (if any) + EMI X No. of months of EMI – Cashback + GST on interest

An upfront discount will also impact the EMI size.

The good part is that, except for GST on interest, everything else is known and shown upfront.  You simply need to add up the numbers to find the net cost.

You can simply look at the net payment for the purchase and compare various options. Lowest net cost is the finest option for you.

You may argue Rs 24,500 paid upfront is better than Rs 25,000 paid for the same product over 12 months. You are right, but let’s not complicate the matters. Let’s just focus on the net cash outgo.

amazon logoLet’s Consider an Example

I pick offers for a mobile phone on Amazon.

Product NameMinimum PurchaseMax Discount CC/CCEMI/DCEMIMax Discount AmazonPay ICICI Credit Card
OnePlus 10 ProRs. 60,299Rs. 6,000Rs. 2,985
OnePlus 10RRs. 35,099Rs. 1,000NA
OnePlus Nord CE 2Rs. 21,599Rs. 1,500Rs. 420
OnePlus Nord CE 2 LiteRs. 17,999Rs. 2,000Rs. 1,100

You can see discount is more on the regular ICICI Bank credit and debit cards. But, in the Amazon Pay ICICI Credit card, you will also get 5% of the amount as cashback.

If You Were to Buy Lumpsum

On regular ICICI Bank Credit card

Net cash outgo = 25,000 – 1,500 (upfront discount) = 23,500

On Amazon Pay ICICI Bank Credit card

Net cash outgo = 25000 – 420 (upfront discount) – 1,229 (5% cashback on 25,000-420) = Rs 23, 351

5% cashback is available only for prime members. For non-prime members, cashback is only 3%.

In this case, for a prime member, Amazon Pay ICICI Bank credit card is better for lump sum (despite a lower upfront discount).

If You Were to Buy on No-Cost EMI

As per T&C of the deal, Amazon Pay ICICI bank credit card does not offer any upfront discount on EMI purchases. Remember you don’t get any cashback on EMI purchases.

On the regular card, you still get a discount of Rs 1,500.

For both regular and co-branded cards, you will be charged a processing of Rs 199 plus GST = ~Rs 235.

Net cash outgo on regular ICICI Bank credit card

235 (Processing fee) + 6 X 3,917 (No-cost EMI for 6 months after discount of Rs 1,500) = Rs 23,735

Net cash outgo on Amazon Pay ICICI Bank Credit card

235 (Processing fee) + 6 X 4167 (No-cost EMI for 6 months. No upfront discount) + No cashback = Rs 25,235

So, if you must buy on No-cost EMI, you are better off using a regular ICICI Bank credit card. I have not considered GST on interest in the calculations here but that won’t change anything.

So, we got different answers for lump sum and EMI purchases. Use Amazon Pay card for lump sum purchase. And use regular credit card for EMI purchases.

Now, you can have multiple permutations and combinations. In the above examples, I have just considered ICICI Bank cards. There may be offers on other cards too.

There is no option that ends up winner in all scenarios. By using these simple calculations, you can find out the best payment mode for your purchase.

A Few Points to Note

Everything else being the same, an 5% upfront discount is better than 5% cashback. Why?

Because a bird in hand is worth two in the bush. With upfront discount, you get the benefit upfront. No need to wait for the benefit. Cashbacks are contingent. Unless the cashback deal terms and conditions are very crisp, I wouldn’t want to take the bet. Amazon Pay ICICI Credit Card and Flipkart Axis Bank Credit card are examples where cashback structures are quite transparent. Not sure about other cards.

No-cost EMI may not always be better than interest-based EMIs. If the no-cost EMI offer has a processing fee, it will increase the cost. Further, if taking the no-cost EMI means you lose out on upfront discount/cashbacks, do a rethink. In fact, if you are losing out on upfront discount by opting for EMIs, consider buying by paying full (and get upfront discount) and asking the bank subsequently to convert your purchase amount into EMI.

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