With the digital era and money in your e-wallets and easy financing option, the time has made us all prone to making purchases that are indeed not required by us. Say for example, No Cost EMI option offered by several physical and online retailers is making people give in to the deal without actually realizing the loss.
So, here is a take on how good or bad is the no-cost EMI option
Cost involved in a No Cost EMI
The cost involved in the No Cost EMI option, here are two illicit costs to which the purchaser does not pays heed. First one is the taxes that are to be paid to the banker plus the difference in the invoice amount which usually is the selling cost of the product less the discounted amount and total EMI charged for the retail product.
How does this mode of financing works?
In this mode of financing three parties mainly purchaser of the good, banker and retailer are involved. Also, to avail of such an option, you need to be having the credit card of the bank offering such a deal. Mostly, such a financing option is available on items that are aimed to be sold faster.
The no cost EMI option of finance has come up after the RBI banned 0% EMI scheme as a modification of the erstwhile plan to entice various customer groups. In it, the EMI charged to the product specifically the interest amount is paid back to the customer as cash back by the retailer.
In a true sense, the new no-cost EMI charges interest but the same is adjusted from the sale price of the product. What this means is consumer does not have to pay over and above the sale price of the bought good. More, so it is a subvention offered to consumers by manufacturer or seller.
As an example: Suppose you buy a TV for as much as Rs. 25000 and the retailer offers you a discount of upto Rs. 2000 as no-cost EMI waiver then after paying the discounted price for it, the discount is adjusted by the interest payment which is debited from your bank account. Usually, no-cost EMI offers discount in the range of 12-15% which depends on the tenure as well as product, seller as well as loan financier.
The deal makes sense only when the product is really needed and personal experts however advise to not take on to such financing options for white goods. Also, if you have made up your mind to give in to such a deal then do not default on EMI payments as it may well be the case that the EMI option taken on your credit card proves really hard on your pocket.