‘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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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.
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.
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.
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:
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.
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.
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.
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.
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.
You should opt for No Cost EMI if:
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