Buying a product on EMIs is very comfortable, as you don't have to pay the entire amount for owning the item. If you can't pay the entire amount while purchasing the product, you can simply opt for EMIs and pay it each month. There is something called no-cost EMIs. Now, a lot of online and offline retailers are offering the 'No-cost EMI' or 'Zero Cost EMI' on various products like mobile phones, electronic appliances, and so on.
In the year 2013, Reserve Bank of India, RBI, had banned banks from offering interest-free loans. According to the RBI’s order, banks should refrain from offering 0% EMI schemes on retail products. So, banks have come up with an alternative option. When you hear the word 'No-cost EMI' you feel there is no interest payment involved.
This is not true. There is actually a cost which you need to bear on these 'No-cost EMI' schemes. In the case of no cost EMIs, the discount is taken back by banks in the form of interest. As RBI rules do not allow interest-free loans, companies or vendors give an upfront discount or cash back which is equal to the interest amount.
See Also: Why Buying A Smartphone On EMI Is Not A Good Idea?
No cost EMI is a marketing gimmick and interest is somehow charged to customers. Let us take an example of No Cost EMI on mobiles to understand how No cost EMI works. In the case of No Cost EMI, there will be three stakeholders, bank, customer, and the retailer. The retailers offer No Cost EMIs as a discount which is equivalent to the interest amount to be paid. Let us consider that you want to buy a smartphone worth Rs 40,000. If you are opting for 3-month EMI plan, you will be charged 15% interest which is 6,000. If you are opting for No Cost EMIs, you will not be offered discounts and you pay the original price of the Smartphone in EMIs.
In case you are paying in cash, you will get the phone for a discounted price of Rs 34,000. But, if you opt for No Cost EMIs, you will have to pay Rs 40,000. You will not get a discount of Rs 6,000 which goes to pay interest on the loan. The amount which you pay for a smartphone is divided into money paid to a retailer and interest paid to a banker.
See Also: Story Of How Bank Customers Lost Money To Loan EMI Fraud?
1. No Cost EMI is nothing but a marketing gimmick to attract customers. Here, you buy a product which you don't need by paying more money.
2. You can avail No Cost EMI only if you have a credit card of the bank which offers this scheme.
3. This scheme is normally offered on the goods which are slow-moving and when the seller has to clear the stock.
4. Repayment tenure of No Cost EMI is for a maximum of 12 months.
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