The catch behind No-Cost EMIs

Festive season is yet to begin, but people now are already in the festive mood. How someone can resist those offers on various things going on in the market. Then may it be online or offline, apparels to gadgets to even cars and bikes. So, all of you must be in a shopping mood and on a shopping spree. While shopping online or in some cases even in offline mode you may have come across a deal where in you don’t have to pay the interest part of the EMI (Equated Monthly Installments), rather only pay the principal in EMI format. These schemes are popularly known as no-cost EMIs or interest free EMIs. Sound’s good right? But there is a catch. According to the RBI’s (Reserve Bank of India) circular dated September 17, 2019, there is no concept of 0 per cent interest. So, in such a case what companies or banks do is they pass on the interest to the customer in the form of processing fee.

So, how all this actually works? Say for instance, you went for an online shopping to buy a gadget worth Rs. 50,000 (actual price of the product) with an EMI scheme of 6 months. The interest rate for the same is 15 per cent and the total interest amount works out to be Rs. 2,210 and EMI works out to be Rs. 8,317. So, here what online shopping sites do is that they calculate no cost EMI based on the actual price and not the discounted one. The no-cost EMI works out to be Rs. 8,333. In our case say the discounted price of the gadget is Rs. 47,790. Whether you go by no cost EMI or normal EMI you are indirectly going to pay the full amount at the end i.e. Rs. 50,000. But if you opt to pay upfront then you might be able to enjoy the discounts.