no cost emi

No cost EMI is a scheme under which a consumer can buy an item on EMI with no processing fee and no additional interest rate. Suppose an item is of Rs. 60,000 then you can pay an initial amount of 6000 and rest other amount in 9 installments. This is supposed to be an easy way to purchase the costly items while maintaining the budget simultaneously. But the reality is quite different than this. This the way to allure the customers to buy the product online and offline.Though the scheme takes away the burden of paying the huge amount at once, but there are consequences in terms of extra cost for the same item to be paid by the customers.

What’s according to Law ?

As per RBI guidelines, there is no concept like zero percent interest.The circular of RBI clearly states that such Zero percent schemes are camouflaged and are meant to trick the customers while the charges are inherent  either in the cost price or in the form of processing fee.

How does NO Cost EMI work ?

The scheme works principally in the below mentioned ways:

Interest is inherent in Cost Price: In this method, the interest is added up in the cost price of the item itself. Suppose the item is of Rs. 10,000. The retailer offers the same product to the customers at Rs 12500 under “No Cost EMI” scheme. So the cost of Rs. 2500 is added in the amount paid by the customer only.

Rigid Terms & Conditions: A customer would never be able to judge the trick behind the Zero cost EMI until he reads the terms and conditions of the same. If in case the EMI is missed, there would be huge interest on it. Also the upfront cost would be difficult to be surmised as how it is calculated until you go deeper into the Terms & Conditions of the Scheme.

Interest is equivalent to the offered discount: In this method, the discount displayed on the item is equal to the interest charged. Suppose the cost of the product is Rs. 20000 and interest of 3 months at 15% would be Rs. 3000. So the price of the item displayed would be Rs. 20000, discount offered would be Rs. 3000. And the interest charged under EMI would be Rs. 3000 and hence the total amount paid by the customer would amount to Rs. 20000 only. This is a misnomer showing the discount and adjusting the interest in it.

As the festive season is appearing, do not get carried away by such schemes and remain aware of the intricate details of the same. Taking an informed choice is always better than the blind choice.