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Everything About 'No Cost EMI'

IndianMoney.com Research Team | Updated On Thursday, November 01,2018, 04:43 PM

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Everything About 'No Cost EMI'

 

 

‘Terms and Conditions’ are something you must be careful of. This is true if you head to a shopping mall and want to make some purchases after falling for the shiny ‘No Cost EMI’ offer. Many e-commerce marketplaces like Amazon, Flipkart and so on, offer these schemes. Of course, you would want to make the best of this offer and purchase that product without thinking twice.

There is a famous marketing gimmick going round called No Cost EMI. The No Cost EMI became famous after the RBI in the year 2013, banned banks from offering 0% EMI on retail products. Banks came up with a variant called No Cost EMI. RBI has banned all interest-free loans.

If you hear the word, No Cost EMI, it looks like there are no interest payments involved. You feel it’s a no interest loan. It’s not. No Cost EMI is a loan entailing interest payments. On availing No Cost EMIs, your bank will enjoy a discount in the form of interest. There’s nothing like a free lunch. 

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Everything About ‘No Cost EMIs’

How does the No Cost EMI work? Let’s understand the No Cost EMI on mobiles. A No Cost EMI has three stakeholders. Bank, customer and the retailer. The Online retailer offers No Cost EMIs as a discount (say a Smartphone offered as a discount), which is equal to the total amount of interest to be paid.

Let’s say you want to buy a Smartphone which costs Rs 30,000. Under a 3-month EMI plan, a 15% interest is charged and you have to pay an interest of Rs 4,500. If you opt for No Cost EMI, there’s no discount and you pay the original price of the Smartphone in EMIs.

What does this mean? If you pay cash up front, the Smartphone would cost just Rs 25,500. You get it at a discounted price of Rs 25,500.  If you opt for the No Cost EMI, you land up paying Rs 30,000. You don’t get the Rs 4,500 discount which goes to pay interest on the loan. The total price you pay on the Smartphone is split into money paid to a retailer and interest paid to a financier. 

Reserve Bank of India (RBI) had banned banks from offering interest-free loans way back in 2013. According to the RBI’s order, banks should refrain from offering 0% EMI schemes on retail products.

What is No Cost EMI?

No Cost EMIs is a scheme offered by retailers and showrooms (on select product purchases) to consumers, wherein the consumer will not have to make a down-payment and pay interest.

How does No Cost EMI work?

In a no-cost EMI, there are three stakeholders:

1. The showroom/retailer

2. The bank and

3. The consumer

No Cost EMI is offered on:

1. Select products offered by retailers.

2. Select bank credit cards

You have to be careful on what’s written in the fine print, before making the purchase. First of all, showrooms/retailers don’t offer this scheme on every product that they sell. Secondly, if you do not have a credit card of the relevant bank that offers the scheme, you can’t get the No Cost EMI deal.

A retailer provides a No Cost EMI in collaboration with partner banks. The credit limit on your card gets blocked for the entire transaction value. The complete amount gets blocked even though you are liable to pay just the EMIs.

What’s the catch on No Cost EMI?

Business is not a charity. So, why do retailers and banks offer No Cost EMIs? Isn’t it something to think about? Right, let’s see how each stakeholder benefits from No Cost EMI:

SEE ALSO: Will Banks Raise Interest Rates?

1. Manufacturer/Original Equipment Manufacturer:

  • The Original Equipment Manufacturer (OEM) or manufacturers of white goods like television, microwave ovens, and refrigerators and so on are small in number. They cannot compete with each other in terms of price cuts. If they do, they will incur huge losses. Hence, they cannot enter into a price war.
  • In such a scenario how does an OEM attract customers and get deals? The manufacturer does so by striking a deal with retailers and showrooms to place bulk orders. The retailers get a heavy discount in return. Example, for an order of 100 TV sets, the manufacturer charges only for 80 sets and the remaining 20 are given free of cost.

2. Showrooms/retailers:

  • Showrooms and retailers offer No Cost EMIs only on products which are outdated, slow-moving or are very popular and expensive. As such, they are able to convert slow-moving products into fast-moving products. This helps them prevent a significant amount of loss.

3. Banks:

  • The retailer pays the interest amount to the banks.
  • Banks have an arrangement with select showrooms/retailers, where credit card holders have to pay swiping charges of around 1-2% when they swipe after buying a product under the no-EMI scheme.

4.  Consumers:

  • The discount amount is usually equivalent to the interest payable. Such an amount is paid by the retailer to the banks. That is how you benefit by not paying interest on the purchase.
  • Retailers might offer an upfront discount or cash back equivalent to the interest amount.
  • You might get popular and latest products at attractive prices and pay no interest.
  • If an LED TV costs you Rs 80,000, you may opt to pay equal amounts (EMIs) spread over a longer tenure and not an upfront payment. This makes buying inexpensive.
  • This scheme makes it easy for consumers to purchase expensive products online.

No Cost EMI Tips

  • Discount is offered only if you opt for card purchases and not cash purchases.
  • No Cost EMIs are nothing more than a mere marketing gimmick. You end up buying products that you don’t need paying more money.
  • These schemes are offered when goods are slow moving and seller wants to clear the inventory.
  • These deals are also offered when new technology is going to hit the markets in a few months. Therefore, you may end up buying an outdated product.
  • If you don’t have a credit card of the bank that offers this scheme, you can’t avail the No Cost EMI offer.
  • You will also have to pay taxes to your bank.
  • Repayment tenure is a maximum of 12 months.
  • Even though it seems that you don’t have to pay an interest on No Cost EMIs, you do have to pay. How? Retailers offer you an upfront discount or cash backs equivalent to the interest amount. In the end, you pay this amount in the form of interest.

You might come across advertisements wherein the retailers or e-commerce websites may be selling a mobile phone worth Rs 30,000 at No Cost EMIs. They say that you will get a discount of Rs 2,000, if you make a cash purchase. You will lose the discount if you make a card purchase.

According to human psychology, you will opt for card payments and pay the amount in a phased manner rather than paying in cash up front. You may not have the necessary cash. Therefore, you end up paying Rs 30,000 with interest. Know more savings and Investment planning strategies using low cost EMI.

No Cost EMI On Amazon:

If you log on to the Amazon website, you will get an explanation on the No Cost EMIs. If you buy an item costing Rs 24,000 with 6 month tenure, you end up paying the EMI provider Rs 4,000 a month for 6 months. This is Rs 24,000 excluding GST + other taxes.

  • Amazon offers the No Cost EMI on credit cards of 11 banks. The banks are Axis Bank, ICICI Bank, HDFC Bank, Citi Bank, SBI, IndusInd Bank, Yes Bank, Kotak Mahindra Bank, RBL, HSBC, Standard Chartered - and pre-approved loan cards, also known as EMI cards.
  • Amazon says there’s no processing fee and down payment on No Cost EMI.
  • Amazon offers the No Cost EMI only on select products like laptops, mobiles and large appliances.
  • Amazon says the No Cost EMI offer is available only to select sellers.
  • Under the No Cost EMI, the interest charged by the bank is given to you as an upfront discount, when you make the purchase. This is Amazon’s No Cost EMI.
  • Sellers on Amazon fund the No Cost EMI. It is available only on select products and brands.
  • The EMI Provider takes 3-5 days to process EMIs, after which EMIs are charged on a monthly basis. This would happen as per credit card billing cycle.

No Cost EMI On Flipkart:

Flipkart has a No Cost EMI on select Smartphones purchased from its online app or website. You can purchase a Smartphone, no matter how costly it is. Purchase a Smartphone online at Flipkart and pay the exact price of the Smartphone, at no extra cost vis-à-vis interest and processing fees.

Buy mobile at No Cost EMI on Flipkart:

  • Select the Smartphone you wish to purchase.
  • Take up the No Cost EMI offer and choose the bank through which you want to make the payment.
  • You then select the EMI option on the payment page.

Flipkart offers the Super Value No Cost EMI on over 20 devices like Redmi 5A, Redmi Note 5, Oppo F3 Plus and other devices through Bajaj Finserv. You would be charged the actual price on the mobile with no interest involved.

Banks offer No-Cost EMI Scheme:

A No-Cost EMI is offered in collaboration with a bank or an NBFC. An Online marketplace like Flipkart or Amazon offers No-Cost EMIs with a bank or an NBFC. NBFCs offer the loan facility and have a tie-up with a credit card issuer. Online marketplaces have a tie-up with banks. EMI amounts are deducted from the credit card and you have to make repayments within the billing cycle.

You need to have the credit card of the bank which offers the scheme. In case of NBFC, you need the EMI Card of the NBFC. There may be fees on the EMI Card.

Should you opt for a No Cost EMI?

You should opt for No Cost EMI if:

  • You are able to strike a good deal by getting an additional discount.
  • You don’t have enough cash to make the upfront payment.
  • You are getting to buy a popular product at a significant discount.

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IndianMoney.com Research Team

The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.

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