Home / Money / Personal-finance /  The price you pay for a ‘no­ cost EMI’

Mumbai: Picture this: you want to buy a mobile phone, but have only 15,000. E-commerce websites, including Flipkart and Amazon, tell you that you can buy a mobile phone worth 30,000 on no cost EMI, by taking a loan on credit card and paying 10,000 for three months. They also offer a discount of 638. You decide to go for it. Thinking you made a good buying decision? Here is what actually happens:

What is no cost EMI

In 2013, the Reserve Bank of India (RBI) banned banks from offering 0% EMI scheme on retail products. So banks try to come up with a variant of the option. No cost EMI sounds like you don’t have to pay any interest on the loan, but in reality you do. Your bank will take back the discount in the form of interest. “RBI rules don’t allow interest-free loans. Vendors or companies either give an upfront discount or offer cashback equivalent to the interest amount," said Rajiv M. Ranjan, founder and chairman and managing director, PaisaDukan.com.

In the same example mentioned above, if you take the EMI option, you pay 638 as interest, the same amount you got as a discount while buying the mobile phone. Your bill for the purchase will show 29,362, but your total EMI outgo will be 30,000. You will also have to pay taxes to your bank, which are not included in the cost.

How no cost EMI works

There are three stakeholders in a no cost EMI: the retailer, bank and consumer. Usually, select banks offer no cost EMI on credit cards. If you don’t have a credit card of the bank that offers the scheme, you can’t get the deal. You have to option of opting for an EMI card from a non-banking finance company. In case of Bajaj Finserv, you have to pay a fee for the EMI card. The retailers offer no cost EMI only on select products—usually on products they want to sell faster. In case of a no cost EMI, the retailer is willing to give a discount equivalent to the interest a customer pays. “The distributor or original equipment manufacturer (OEM) pay the discounted interest amount to the customer," Ranjan said.

Should you opt for a no cost EMI?

Banks such as State Bank of India, HDFC Bank Ltd, Axis Bank Ltd, ICICI Bank Ltd, RBL Bank Ltd, Yes Bank Ltd, Standard Chartered Bank and Kotak Mahindra Bank offer no cost EMI on e-commerce websites such as Amazon and Flipkart. Usually, a discount is offered on products such as mobile phones, refrigerators, television sets and washing machines. Retailers don’t want to offer a direct discount, as it will make the product discounted. Also, as a customer you may not have the cash upfront.

Your higher aspiration may want you to buy it. In most scenarios, the discount on cash is not higher than on EMI. It a marketing gimmick and a way to get the old stock out before the new stock comes in. It is not advisable to opt for loans to buy white goods. It can work for you if the product you wanted to buy comes with a discount. However, don’t get trapped in a marketing gimmick where you end up buying a product you didn’t need, that too at a higher cost. Also, don’t default on your EMI.

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