A big majority of the Pakistani public holds an account in one or more banks. Naturally, many of the bank customers also often get credit cards from the same banks.
Irrespective of whether you have a credit card or not, banks usually keep sending you some pretty “insane” offers where you can get the smartphone (or any other gadget) of your choice at 0% markup if you pay back within a fixed amount of time – usually 3 to 6 months.
While it may seem like a pretty good deal for you to buy your favorite handset on installments without paying any interest on it, it is actually a deceiving tactic employed by almost all banking institutions.
Lets take a look whats going on here.
Banks Charging Extra? Or Providing A Service?
While the banks claim that they do not charge you anything extra and you even get to payback in installments without any markup, there’s a high probability that they are misleading you.
For starters, most banks often have a transaction fee ranging from Rs. 1,000 to 3,000 you have to pay before you start on an installment plan.
But that’s the small part, the major part where they rip you off is with regards to the actual price of a product they offer, in this case a handset that you are set on buying on installments.
Protip: Whenever you get a flyer in your mail, find an installment plan shared on social media or read a news article about some new installment offer, just compare the bank’s price of the handset to the normal market price.
It is common sense but you’d be surprised how many people just don’t check up on prices.
Banks can charge as high as 150% of the normal market rates. It’s unfortunate the unknowing banking customers are tricked using such tactics. Rarely can you find an actual market price with such installment plans. On the other hand, banks which do not have the 0% markup options, employ similar tricks as well.
Some Recent Examples
Let us give you some examples here:
Bank Alfalah has a Step-by-Step (SBS) Installment plan which allows you to pay with 0% markup if you opt for 3 or 6 month installment plans. Take a look at one of their offerings below:
While the bank is offering 0% markup, it is charging 89,000 for a phone which didn’t even cost this much when it was first launched in Pakistan officially. The phone can easily be bought for around 63,000 if you buy it from one of the online retailers. An astounding 141% of the market price is being charged here.
Most Pakistani banks do not offer proper warranty services as they claim it’s a third party product. So in most cases, you end up with whoever third-party reseller they chose to contract if you want to claim a warranty. Sometimes, you don’t even get any warranty service at all. You can get the same phone with proper Samsung warranty from the retailer of your choice for around 63k-64k. Given how stringent they are with offering installment plans, one could’ve thought they cover warranties as a standard.
Let’s take a look at some more examples to prove that this is a common practice these days. Take a look at Standard Chartered’s Asaan Installment plan below:
Where iPhone 7 starts at 87,000 when you buy one from SCB, you can get one for about 78,000 online. Some stores offer the device for even less, Rs. 72,600, when you pay via a card online (Yes ironically even the SCB cards work).
Similarly the higher storage versions come with even more premium price while you can get the 128GB version for about 91,000 and the 256GB variant goes for nearly 95,000. You can clearly see a surcharge of 12%-37% in SCB installment prices over standard market rates.
What we’re essentially saying here is, these are not plans with 0% markup as the banks have advertised themselves. They have incorporated the interest in their monthly payments and hidden it in plain sight.
Do Islamic Banks Fare Better?
Now take a look at the halal installment plans which come with zero interest, zero fees, no hidden charges.
Meezan Bank is selling Huawei P9 for Rs. 59,357 if you pay in three installments or Rs. 61,568 if you pay back in 6 months as seen in the image below:
However, the bank is already overcharging its customers since the phone can easily be bought online for Rs. 48,500 with local warranty. Meezan is clearly overcharging by about 22% when you pay back in 3 months and even more when you pay back after a longer duration.
In short, there’s no change whatsoever and the bank is charging an inflated price for the same product.
We are not saying that banks do not have the right to earn profits but at the very least they should be clear about this with their customers and act as a re-seller/retailer rather than just a lending institution.
In any case, setting profits of over 50% is still unjustified when they say there’s zero markup involved.
While researching these examples, we came across several more offerings for lots of other phones but we chose to mention the most popular flagships in the country as samples for our investigation.
Several other banks were also found to be offering similar products at high prices. All of these prices can be found at the respective bank’s loans, personal finance or credit rewards sections. You can compare these yourself as well and you will find that each and every device on the lists is overpriced by huge margins deceiving their own banking customers.
We would like the authorities to take a look at this malpractice which has been going on in this country for well over a decade. As for the banks themselves, they should take corrective steps and be more clear with their customers about what they’re offering them.
DISCLAIMER: Phone prices are sourced from local retailers which can change with time. The post mentions currently advertised prices only.