Don’t you really pay anything extra in Zero Cost EMI? Know the reality
No-cost EMI sounds very attractive but, is it a reality, we should always check such offers before jumping in.
An interest is always indirectly included in the no-cost EMI by charging a higher price.
It is noteworthy that, there is no additional charge for the interest.
The card makes a pre-decided credit limit available to the customer to convert his purchases into EMIs.
Typically, a regular EMI option means the monthly repayment of the product cost is combined with principal and interest.
Since interest is indirectly included in the no-cost EMI by charging a higher price, there is no
additional charge for the interest.
The Reserve Bank of India (RBI) released a circular in 2013, clarifying that zero per cent interest or no-cost EMI is non-existent.
In no-cost EMI schemes, the interest amount is bundled in the product’s price.
Here Is How It Works:
When you buy a product on no-cost EMI, the merchant bears the annualized interest rate.
In case of a no-cost EMI, your bank charges this interest, but the merchant provides it to you as an upfront discount at the time of your purchase, effectively making it a no-cost EMI.
However, not all no-cost EMIs are actually no-cost. You may be charged this amount as a processing fee in some cases.
In other cases, one may be eligible for additional offers by making a lump sum payment. But one still needs to pay 18% GST on the interest to the bank.
If you were to offer to pay the merchant the total price of the refrigerator upfront, you may be able to get it at a discounted price of ₹94,000 in this example.
Hence, it would help if you read the fine print of the terms and conditions of a no-cost EMI card and check the tenure, processing fee, and pre-closure charges before selecting it.
The interest component can usually be seen as a discount in your bill when you opt for such a no-cost-EMI scheme.
However, certain sellers may sometimes build the interest cost into the product’s actual price.
In that case, one ends up paying the interest cost despite opting for a no-cost EMI facility, it will nullify the benefit of saving on the interest cost for the purchase.
So, before buying through a no-cost EMI scheme, it’s best to compare the prices of the product at multiple platforms and stores, especially if it’s an expensive purchase.