No cost EMI also has a price, keep in mind - nothing is available here for 'free'

No cost EMI also has a price, keep in mind – nothing is available here for ‘free’

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Actual cost of Zero cost EMI: Whenever you go to buy a vehicle, electric goods or any mobile phone and want to take a loan on it, then you will definitely hear the term ‘No Cost EMI’ or ‘Zero Cost EMI’. This term definitely comes up during online shopping, especially on the purchase of mobile or laptop. Many companies or shopkeepers offer no-cost EMI while buying goods online and offline during the festive season.

Zero Cost EMI or No Cost EMI means that if you have purchased an item on credit, you will not have to pay any additional interest on the principal amount. You pay only the actual cost of the goods in easy installments at no extra cost. If you have purchased an item worth Rs 20,000 and avail No Cost EMI facility, then you will have to pay only Rs 20,000 in installments. No additional interest or additional charges will be required to be paid separately.

But the harsh truth of the market is that nothing is available for free here. No-cost EMI is also priced in the market (No Cost EMI Cost). And especially the loan is not interest free at all.

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What does the Reserve Bank say
The Reserve Bank of India itself – RBI has said in a circular that no loan is interest-free. A 2013 RBI circular states that in the zero percent EMI scheme on credit card outstandings, the interest amount is often recovered as processing fee. In the same way, some banks are charging the interest of the loan given by them from the cost of the goods. Schemes like No Cost EMI are used only to woo the customers.

Interest is included in the price of the goods
In no-cost EMI, the interest is indirectly included in the no-cost EMI by charging the higher cost of the goods, hence no additional charges for interest. No-cost EMI is a part of the loan itself that allows you to pay for purchases over a period of time without any interest rate. On the face it may sound tempting, but in reality you pay a price for it.

Raj Khosla, Founder and MD, MyMoneyMantra.com told livemint.com that generally, a regular EMI means the monthly payment of the product cost along with the principal and interest. In no-cost EMI plans, the interest amount is included in the price of the product.

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Raj Khosla says that No Cost EMI is an illusion. Here the interest amount is charged only in EMI. If you carefully read the terms and conditions of Zero Cost EMI while shopping, then you can understand it.

no cost emi scheme
Raj Khosla says that zero percent scheme is nothing but a marketing fund. The interest of the loan is collected from the customers in some other form only. They tell that online shopping companies often do not give the discount that you give on paying for an item in No-Cost EMI. The same amount of exemption is given to the bank or the lending institution. Another way is that the interest amount on the loan is also added to the cost of the goods. On no-cost EMI, companies do not give discount on their goods to you but to the finance companies. Banks or finance companies charge a high interest rate on no-cost EMI and this interest rate can be 15 percent or above.

No-cost EMI is always divided into three parts. This includes the retailer, bank or finance company and all three of the customers. However, the customer has the advantage that he does not have to pay the full amount of the goods at once.

cash in king
Tax expert Balwant Jain says- ‘Cash is King’. Always buy goods in cash, otherwise you will get caught in the debt trap. You must have a credit card for no-cost EMI. And you know nothing is free on credit cards. Rather hefty interest is charged. Therefore, whenever you plan to buy goods on no-cost EMI from now on, first understand all the maths very well.

Tags: credit card, How to pay your EMI, Interest Rates, Online Shopping, RBI

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