Purchasing products such as a mobile phone, refrigerator, or washing machine by making an upfront payment of the entire cost might not be a practical option for many people. EMI is a budget-friendly alternative with the help of which the cost of the purchase is broken down into smaller amounts which the consumers can pay every month for a certain period.

While the EMI option eliminates the burden of high upfront cost, you are required to pay interest for using this facility. The interest amount is added to your EMIs. As a result, the total cost of purchase with the EMI option gets higher as compared to upfront payment.

To attract more customers, brands, financial institutions, credit card providers, and offline and online stores offer no-cost EMI schemes. While not paying any interest for using the EMI facility sounds beneficial, there are few important things one should know about such schemes-

What are Zero Interest EMI Schemes?

As mentioned above, when you purchase a product on EMI, the monthly EMI amount is a combination of the cost of the product and the interest amount. Zero interest schemes claim to forego the “interest” part, enabling consumers to purchase products by only paying the cost of the product.

However, in most of the cases, such schemes are just marketing tactics, and consumers are made to pay the interest component as well in one way or the other.

What are the Different Types of No Cost EMI Schemes?

There are essentially two different types of zero cost EMI schemes offered online and offline. In most cases, when you select the zero cost EMI option, you will be required to forego the discount that you can get by making an upfront payment for the purchase.

The seller then pays this discount amount to the financial institution for covering the interest amount. In other words, the interest amount is already added to the cost of the product. The other method is charging a processing fee for the same. In this method, you are asked to pay a processing fee for using the zero cost EMI facility. This processing fee is nothing but interest.

Are No Cost EMI Schemes Ever Beneficial?

To protect the consumers from such malpractices, the RBI banned most zero cost EMI schemes. However, there are still financial institutions and brands that offer such schemes. Only a few of them are actually transparent and eliminate the interest component from the EMI option.

Now that you know what is zero interest EMI and how these schemes work, use such offers very carefully and only trust reputed companies for the same.

Learn more about Mutual Funds for a good personal financial management.

DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



Trending Articles

Popularly Searched Terms

Financial Advisor

Recurring Deposit vs Fixed Deposit

What is Fixed Deposit

What is a Credit Score

What is a Savings Account

Latest Articles

abc-of-personal-money
abc-of-personal-money

Thinking about a Career Change During the Coronavirus pandemic? Here are 8 Things to Consider

Read More
Posted on 04 June 2020
abc-of-personal-money
abc-of-personal-money

What Is a Credit Card Penalty Interest Rate?

Read More
Posted on 04 June 2020
abc-of-personal-money
abc-of-personal-money

Why Should Young Millennials Take credit Report Seriously?

Read More
Posted on 04 June 2020

Featured Articles

image abc-of-personal-money
abc-of-personal-money

Are Millennials Any Different When It Comes To Planning Financials?

Read More
Posted on 05 February 2020

Relevant Articles

image themoneyproject
themoneyproject

What Cost Are You Willing To Uphold Your Traditions?

Read More
Posted on 04 June 2020
image abc-of-personal-money
abc-of-personal-money

Thinking about a Career Change During the Coronavirus pandemic? Here are 8 Things to Consider

Read More
Posted on 04 June 2020
image abc-of-personal-money
abc-of-personal-money

What Is a Credit Card Penalty Interest Rate?

Read More
Posted on 04 June 2020