Are 0% interest EMI's really legit?
- Thread starter iPwnz
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yes legit ,No hidden charges
Whatever is interest to be paid to bank on the total amount is given as additional discount on final checkout page .
Legit as in in the letter of the law. Not in spirit. If I am getting a 0% EMI vs full payment, why should I do full payment?
Secondly, even though it is 0% EMI, the GST on the interest portion will have to be paid by you
Secondly, even though it is 0% EMI, the GST on the interest portion will have to be paid by you
rkkaranrk
Innovator
What if there is no interest in the first place ?Legit as in in the letter of the law. Not in spirit. If I am getting a 0% EMI vs full payment, why should I do full payment?
Secondly, even though it is 0% EMI, the GST on the interest portion will have to be paid by you
0% EMI does not have any interest on principle right or I'm missing something here ?
VIJAY PATHAK
Contributor
As per RBI circular, credit card company must charge interest on emi, so eCommerce company some time offers discount equivalent to interest charged by bank,
so bank will charge emi + gst on interest component...
so at the end u would be bearing gst charged on interest component....
rkkaranrk
Innovator
True, This is how credit card works they charge you interest but then the seller (flipkart/Amazon) gives you extra discount for the interest charged+gst.
But with Bajaj Finserv you walk in with your card or with your document finalize the price for the product you wish to buy just make the payment in easy installment depending upon tenure/scheme they are offering without any interest
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https://www.bankbazaar.com/finance-tools/emi-calculator/why-rbi-ban-zero-percent-emi-scheme.html
The 0% EMI scheme is viewed as a great benefit by most consumers. However, this method of repayment consists of a shorter tenure and hidden costs. The lender receives more than the regular interest rate from the borrower and the overall expense of the loan/ credit is higher than what is initially perceived. Recognizing this issue as well as various other factors and to protect consumers, the RBI has placed a ban on this EMI scheme. This is intended to ensure transparency is the pricing mechanism.
Example: Person “A” buys a phone worth Rs. 40,000 at 0% interest on EMI for a period of 6 months. EMI amount is Rs. 6,667. The processing fee is Rs. 1600 and by paying the EMI for 6 months only, the borrower is effectively paying a flat rate of interest. This means that the interest will be calculated on the full loan/ credit amount and not based on the reducing balance method. Hence, person “A” would effectively be paying a 14.15% interest, unknowingly. Whereas, if he had purchased the mobile in cash he would have received a discount on the same. Alternatively, if he had purchased on an EMI at a regular rate of interest he would only have to pay a 10- 12% interest (depending on the lender).
Factors Leading to RBI Ban on 0% EMI Scheme
The following factors contributed to the decision of RBI to ban the 0% interest on EMI scheme:
The 0% EMI scheme is viewed as a great benefit by most consumers. However, this method of repayment consists of a shorter tenure and hidden costs. The lender receives more than the regular interest rate from the borrower and the overall expense of the loan/ credit is higher than what is initially perceived. Recognizing this issue as well as various other factors and to protect consumers, the RBI has placed a ban on this EMI scheme. This is intended to ensure transparency is the pricing mechanism.
Example: Person “A” buys a phone worth Rs. 40,000 at 0% interest on EMI for a period of 6 months. EMI amount is Rs. 6,667. The processing fee is Rs. 1600 and by paying the EMI for 6 months only, the borrower is effectively paying a flat rate of interest. This means that the interest will be calculated on the full loan/ credit amount and not based on the reducing balance method. Hence, person “A” would effectively be paying a 14.15% interest, unknowingly. Whereas, if he had purchased the mobile in cash he would have received a discount on the same. Alternatively, if he had purchased on an EMI at a regular rate of interest he would only have to pay a 10- 12% interest (depending on the lender).
Factors Leading to RBI Ban on 0% EMI Scheme
The following factors contributed to the decision of RBI to ban the 0% interest on EMI scheme:
- Hidden Rate of Interest: Even though the scheme claims that there is 0% interest charged on the EMI, other charges make up for the interest component. It is mostly retrieved in the form of processing fee. This indicates that the scheme is using false claims to attract borrowers and exploiting the opportunity. Most banks are not allowed to offer loans below the stipulated Base Rate.
- Artificial Demand Creation: Sales were higher due to this 0% interest on EMI scheme. This lead to artificial inflation of demand through purchases driven by sentiment. The ultimate consequence of this would be an economy with low growth and high rate of inflation. Once the 0% EMI schemes were banned, the sale of a lot of high-end consumer goods have declined.
- Disparity in Pricing: The price of a product varies depending on the mode of payment – whether the payment is made via debit card, cash or credit card. Usually, the customer receives a discount when he/she opts for upfront payment in cash, for the product. This benefit is not offered to those who opt for an EMI scheme for repayment. Merchants also levy a transaction fee on those who wish to pay by debit/ credit card. Such pricing disparity also proved to be a major problem under the 0% EMI scheme.
Exactly this. If you can get something in 0% interest rate EMI why would you pay in full upfront? I always suspected there to be *some* hidden charges, in some form but always there.
I still don't get how this GST works though.[DOUBLEPOST=1523084293][/DOUBLEPOST]
This is the reason why I can't believe 0% interest rate EMI even if some e-commerce sites still claim so. RBI banned it sometime ago. But I always suspected some hidden costs to be there because capitalism! 0% interest sounded too good to be true and still does to me. Am I right or am I just paranoid?
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Actually, AFAIK, the only hidden charges I have seen are the GST charges. I picked up a mobile and since it was for someone else who was going to pay me on monthly installments, I used the no cost EMI. However, I am yet to see the processing fees, or maybe need to recheck the card statement!
rdst_1
Juggernaut
There are no processing charges for merchant EMIs AFAIK.
The processing charges are generally only if one converts an amount to EMI via the banks portal. Even then, there are offers when banks waive off these processing charges.
As for merchant EMIs, it is wrong to say they are not based on reducing interest.
I bought Honor View 10 worth 30k from Amazon. I have to pay an EMI of 2500 for 12 months which means it is 30k which I am paying.
For Feb - Principal was 2200 and Interest was 299.
For March - Principal was 2226 and Interest 273.
So EMI calculations are definitely based on reducing interest like any other loan.
However like everyone has said the GST component is the hidden charge and seems to be a bit on the higher side at 18%.
The other issue is that this cost seems to be built-in with the cost of the device and if you are offering this discount for EMIs, same discount should be available to people who are willing to pay the whole amount upfront.
The processing charges are generally only if one converts an amount to EMI via the banks portal. Even then, there are offers when banks waive off these processing charges.
As for merchant EMIs, it is wrong to say they are not based on reducing interest.
I bought Honor View 10 worth 30k from Amazon. I have to pay an EMI of 2500 for 12 months which means it is 30k which I am paying.
For Feb - Principal was 2200 and Interest was 299.
For March - Principal was 2226 and Interest 273.
So EMI calculations are definitely based on reducing interest like any other loan.
However like everyone has said the GST component is the hidden charge and seems to be a bit on the higher side at 18%.
The other issue is that this cost seems to be built-in with the cost of the device and if you are offering this discount for EMIs, same discount should be available to people who are willing to pay the whole amount upfront.
Yep, and sadly, that is what I meant by the spirit of the law - there is no free lunch, and you are being overcharged for the product when paying in full.
On a different note, I want to also bring attention to something else as well in the housing market - some of the developers are offering 0% EMI schemes here as well, maybe with subventions schemes. The entire interest cost which is being borne by the developer is added to your purchase price.
Yes no hidden charges. Like Amazon No Cost EMIs offer the product in discount(interest fees are included in discount). Btw I got my credit card against fixed deposit from Axis Bank. And I'm 25 btw(and incomeless) with complete freedom from parents to use their net banking 
Hope you kids had a nice time disrespecting a 25 year old. Pretty sure none of you can do it in real life with anyone of more or same age. It's ironic how our elders teach us to respect people older than us, but we ourselves never get respected no matter how old we are
Btw I even have a PPF with SBI. Wondering if SBI also offers credit card against PPF
Hope you kids had a nice time disrespecting a 25 year old. Pretty sure none of you can do it in real life with anyone of more or same age. It's ironic how our elders teach us to respect people older than us, but we ourselves never get respected no matter how old we are
Btw I even have a PPF with SBI. Wondering if SBI also offers credit card against PPF
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wtf?Yes no hidden charges. Like Amazon No Cost EMIs offer the product in discount(interest fees are included in discount). Btw I got my credit card against fixed deposit from Axis Bank. And I'm 25 btw(and incomeless) with complete freedom from parents to use their net banking
Hope you kids had a nice time disrespecting a 25 year old. Pretty sure none of you can do it in real life with anyone of more or same age. It's ironic how our elders teach us to respect people older than us, but we ourselves never get respected no matter how old we are
Btw I even have a PPF with SBI. Wondering if SBI also offers credit card against PPF
TheGreatOne
Forerunner
Yes no hidden charges. Like Amazon No Cost EMIs offer the product in discount(interest fees are included in discount). Btw I got my credit card against fixed deposit from Axis Bank. And I'm 25 btw(and incomeless) with complete freedom from parents to use their net banking
Hope you kids had a nice time disrespecting a 25 year old. Pretty sure none of you can do it in real life with anyone of more or same age. It's ironic how our elders teach us to respect people older than us, but we ourselves never get respected no matter how old we are
Btw I even have a PPF with SBI. Wondering if SBI also offers credit card against PPF
They wont offer a CC against PPF, PF, NPS, MF etc, since these are not in their control....
Pranav.Falcon
Contributor
I recently purchased a PC Monitor from Flipkart.
The price was Rs.18,999/-
There were several payment options with HDFC and Bajaj finace having 0% EMI.
I opted for Bajaj finance, I had their EMI card.
The price got divided into equal EMI's and not a single penny extra.
Where were the hidden charges here?
The price was Rs.18,999/-
There were several payment options with HDFC and Bajaj finace having 0% EMI.
I opted for Bajaj finance, I had their EMI card.
The price got divided into equal EMI's and not a single penny extra.
Where were the hidden charges here?
1. The cost of the product
2. Signup charges, yearly fee and cancellation charges for the EMI card .
3. Encourage Compulsive buying.
4. You (your personal data)
2. Signup charges, yearly fee and cancellation charges for the EMI card .
3. Encourage Compulsive buying.
4. You (your personal data)
Pranav.Falcon
Contributor
1) This was the cheapest I could find. Cheaper than Lamington road also
2) Had got this card for free couple of years back when i had purchased some appliances.
3) My current monitor was dead, was the best time to buy one.
4) Agreed !!
2) Had got this card for free couple of years back when i had purchased some appliances.
3) My current monitor was dead, was the best time to buy one.
4) Agreed !!
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