Credit Cards- Interest Free EMI Option

Interest free EMI ensures that the total amount to be paid before the use of the EMI and the amount paid after using the EMI facility are same. There is no interest cost incurred and if there is any interest cost incurred in the scheme, then the total amount will go higher.

Credit Card EMI is an easy, convenient and hassle-free facility which allows you to pay in part instead of paying the whole amount in one go. Since there are no free lunches, these zero percent schemes have hidden costs inbuilt in them. Perhaps the biggest loss for you would be forfeiting the cash discount on a product that you could have otherwise got if you had bought it on full cash. You might also be paying a transaction or processing fee under the zero percent scheme and consequently more money through advance EMIs.

Let’s try to understand this with the help of an example. Suppose you decide to buy an HD television that costs around Rs. 36,000. Under the zero percent finance scheme you will pay the entire cost in six EMIs of Rs. 6,000 for six months. This works out to be Rs. 36,000 spread over 6 months. Now let’s see how you end up paying more. Let’s assume that a processing fee of Rs. 1,000.is charged under this scheme and you have to forego the cash discount of Rs. 3,000 as you are buying the HD on a zero percent finance scheme.

Let’s analyze the total cost. The HD television costs Rs. 36,000. Now add up the processing fee of Rs. 1,000 and Rs. 3,000 that was lost out on cash discount which gives a total of Rs. 4, 000. So the net finance made available to you is Rs. 32000. Since you are paying an EMI of Rs. 6,000 for 6 months which totals up to Rs. 36,000, you end up paying Rs. 4,000 more for what you got.

These schemes were widely popular till a few years back, but RBI regulations advising banks to refrain from offering such schemes. However there are several NBFCs (non-banking financial companies) that continue to finance consumer durables purchase at zero percent. The main attraction of such schemes is that they influence you to purchase consumer goods that could be more expensive than the size of your pocket.

However, the popularity of such schemes with consumers, particularly during the festive season cannot be denied. The success of these schemes can also be attributed to the availability of credit at the point of purchase, minimal paper work, small ticket size and hence, a not-so-stringent eligibility criteria.

There are few tips which you should keep in your mind while opting for interest free EMI options.

• Ensure that there are no processing charges, documentation fees or any other extras by whatever name they may be called. Even if there are any charges, work out what is the interest cost and compare it with other finance schemes.
• Find out the price of the product as if you want to buy it without any finance schemes. It will give you an idea as to how much amount you are sacrificing by way of dealer discounts, festival offers, and free gifts and cash bargains.
• Look out for any fine prints in the loan agreements and any special terms and conditions before you sign your agreement.
• Ensure that you don’t have to pay unreasonable charges for home-delivery, shipping and installation, as many dealers resort to such tactics especially during the festival times and when you are buying the products under zero percent finance schemes.
• Dealers often try to push through outdated models especially in case of Televisions, Refrigerators and other consumer goods by offering interest-free loans. Ensure that you don’t end up buying old models just for the sake of availing finance on zero percent interest.

If you keep these points in mind and make an informed decision, you will not be fooled by any scheme which charges more on the pretext of providing zero interest financing.