Many times people opt for no-cost equated monthly installments (EMIs) when they buy electronic items or gadgets such as a refrigerator, air conditioner or mobile phone online or through offline retailers.
If you have bought a product and are paying your EMIs, you are also eligible for a moratorium on these loans. However, if you opt for a moratorium in case of a no-cost EMI, you may end up paying a very high rate of interest on your outstanding loan amount.
Bajaj Finserv, which is one of the leading players in the consumer durable loan space, has told its customers that they will be charged at the rate of 24% per annum of the outstanding amount on no-cost loans.
The recovery of the interest will be done by increasing the loan tenure.
For example, if you have bought a product of ₹60,000 and are paying ₹5,000 as an EMI and you have three months left, then you will be charged interest at the rate of 24% per annum on the outstanding amount of ( ₹5,000x3) ₹15,000. Therefore, you will have to pay around ₹918 extra on the outstanding loan amount of 15,000.
“Interest will be applicable for the no-cost EMI consumer durable loans if the moratorium is availed. The interest will be charged at the contracted rate of the loan for the period of EMI moratorium on the loan outstanding. Such interest will be collected by extending the original tenor of the loan accordingly," said Adhil Shetty, CEO, Bankbazaar.com.
Therefore, it will increase the cost of your product. It will not be advisable to opt for a moratorium if you have taken a consumer durable loan.
Apart from this, consumer durable loans are marketed as no-cost EMIs, but they are actually not no-cost. There are hidden costs that can be charged in different forms.
“When you opt for ‘no-cost EMI’ schemes, depending on the product and the offer, you may not get certain upfront cash discounts associated with it. Else, depending on the products, offer, and issuer, you may have to make a down payment even if the loan availed is within your approved amount. In some cases, a processing charge may be involved as well," said Shetty.
Therefore, it is important to look at the terms and conditions of these no-cost loans before opting for them.
The Reserve Bank of India (RBI) had in a 2013 circular stated that “zero per cent EMI schemes offered on credit card outstandings, the interest element is often camouflaged and passed on to the customer in the form of processing fee."
Therefore, customers shouldn’t fall for them. And if they have opted for such loans they should avoid availing the moratorium on such loans, as the cost of the moratorium will be very high on such products.