0% interest free EMI

   0% Interest on EMI — Is it really “Zero”

Do you feel excited to get that “Special Zero Interest EMI” on mobile phones, LED TVs, washing machines, laptops and virtually every high value product in the market. Think twice before jumping to avail such offers. Even RBI has issued an advisory, asking banks to be more transparent in offering “0% EMI” schemes.

Remember – “There are no free lunches”. Most of these schemes offer you EMI on the MRP of the product. What they fail to mention is the cash discount you may otherwise get if you buy the product by paying the entire price in one go. Thus if a “Samsung Galaxy” has a price tag of Rs. 30000/-, and is available in the market at a discount of 12 to 15%, your credit card bank would offer you 0% EMI on the tag price of Rs. 30000/-. In other words you are still paying the cost of availing such free EMI schemes by not availing the discount of 12-15%. Not to mention that even in such schemes most banks would charge processing charges.

RBI noticed that banks were not disclosing the processing charges and the amount of cash discount otherwise available to the customers. Further on schemes offered on credit card outstanding, the interest amount is often camouflaged and passed on to customers as “processing fee”. And in some cases banks were loading the expenses which was being paid out as commission to DSAs.

The RBI has issued a operational circular and sought more disclosures under the zero per cent EMI scheme as RBI was worried over the “hidden costs” involved. It wants full disclosures to the made to the customers, including the processing charges.

Though after the advisory issued by the RBI, most banks have started withdrawing such zero interest EMI schemes, do take into consideration the entire cost and discounts available before buying your big purchase this festive season.