Is No Cost EMI really Free from Interest?

Is No Cost EMI really a free lunch? The short answer is No. No Cost EMIs are just a marketing gimmick to attract the financially under-educated masses. No Cost EMIs are designed in such a way that there wouldn’t be any benefit for the consumer at the end of the deal.

Take an example of you are buying a mobile from Amazon, let’s say my favourite mobile, costing around 20k INR. And assume you’re buying this phone during some festive season or during Big Billion Days, then discount would be say around 10% (2000 INR). You can pay in full and obtain the 10% discount. But the shopping site offers an EMI Option. Basically the trap works in two ways:

  1. In one case, you buy the phone at say 3 instalments with each instalment costing Rs.20,000/3. In this case, you won’t be getting the fore mentioned 10% discount. Instead behind the scenes, the same (Rs. 2000) is transferred to the financier as an interest on behalf of you.
  2. In another case, you might see a one time processing fee (Rs. 2000) which is nothing but an interest. This processing fee includes the 20% GST on Interest as well.

Hence, RBI mandates to reflect the hidden costs and interest separately in credit card statement, of any such purchases. more on it

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