Decoding No Cost EMI

People in India are spending more than ever before. Gone are the days when the mentality of saving money ruled on the minds of every member of the family. The collected income or bank deposit was then used for buying any desirable thing. Today, one can buy consumer durables, electronics or other items instantly and one of the popular and easy methods is taking a loan. Loans with EMI have more or less defined this new way of purchase system in India. This new trend has caught the imagination of people. It takes the burden of paying the full payment at once and eases the financial stress. At the same time, you can have your desired item instantly. Do you know what EMI is? There are a lot of products on e-commerce websites which are offering no cost EMI too. How does no cost EMI work? First, let’s see what is EMI and we will delve into the different facets associated with no cost EMI.
What is EMI?
EMI or Equated Monthly Installments can be defined as the amount paid by you each month to the lender of the loan after buying a product on loan with EMI. It is the unequal combination of principal amount and the interest rate. Generally, an EMI is paid monthly on a fixed date. It has to be paid until the entire loan amount is paid off or the tenure ends.

The e-commerce boom has been one of the major factors which have developed the impulsive buying behaviour in common people. The endless opportunity to shop anytime, anywhere through the digital world and digital modes of payment has made it so easy. Some time ago, discounts and offers ruled the roost during festive season and times of extravagant events. All the big e-commerce players like Flipkart, Amazon, Myntra and others offer EMI options. But now it has become an everyday thing.

The most popular items which are bought on EMI are mobile phones, apparel, laptops, TV, fridge. Well, who can take eyes off the latest smartphones and who doesn’t want to replace the latest with the old? But today it is within your reach anytime and everywhere on the web. Although many of the services and payment methods offered are genuine and helpful, others are not so much.
What is no cost EMI?
As soon as one hears no cost EMI, it brings a number of emotions, isn’t it? Often people imagine it as some plan where you are saving a lot of money. Since there is a ‘no cost’ vocabulary used, it is considered as there is no interest. But the reality is quite different.

A no cost EMI, as promised by banks and retailers, can be defined as a plan offered where you can pay for any product in installments every month with zero interest. But there is a caveat according to various finance experts.
Is no cost EMI really no cost?
Whenever you are dealing with financial matters whether in relation to taking loans or shopping online with discounts, it is necessary to know what the Indian law says about it and how the financial authorities of the country see it.

So, what does RBI - Reserve Bank of India say about the no cost EMI?

According to a circular released by RBI in 2013, it has clearly mentioned that zero percent interest or no cost EMI is non-existent. Here is the complete statement released which says the following:-

“In the zero percent EMI schemes offered on credit card outstandings, the interest element is often camouflaged and passed on to the customer in the form of processing fee. Similarly, some banks were loading the expenses incurred in sourcing the loan (viz DSA commission) in the applicable rate of interest (RoI) charged on the product. Since the very concept of zero percent interest is non-existent and fair practice demands that the processing charge and RoI charged should be kept uniform product/segment wise, irrespective of the sourcing channel, such schemes only serve the purpose of alluring and exploiting the vulnerable customers. The only factor that can justify differential RoI for the same product, tenor being the same, is the risk rating of the customer, which may not be applicable in case of retail products where the RoI is generally kept flat and is indifferent to the customer risk profile."

(Source:https://economictimes.indiatimes.com/wealth/borrow/what-is-the-actual-cost-of-no-cost-emi-you-pay/articleshow/66213515.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst)

As you can see the RBI has used choicest words to describe how no cost EMI can never be actually no cost. Let’s see how different companies and banks use this as a marketing gimmick to appeal to the customers.
How no cost EMI works?
Banks, retailers and customers are part of the no cost EMI plan. If you might have noticed some shopping stores ask for a specific bank card to avail offers such as no cost EMI. So, the plans are devised focused on how banks or retailers can utilize it for their advantage. Let’s understand this with an example.

Let’s assume you are buying X smartphone of Rs. 15,000. The retailers would show the price as Rs 15,000 and the discount of Rs. 2250. On further enquiring you would realize that the interest needs to be paid is Rs. 2250. As you can see, the discount rate is equal to the interest amount.

There is another way this no cost EMI works. In this method, your X smartphone will have the price of Rs. 17,250. The offer of no cost EMI will be offered to you. As you can see the interest amount is already added to the price of the product.

Also, there are down payment, processing fees and extra charges that often are under the wrap as far as the customer is concerned. Therefore, reading terms and conditions is a must. Be wise and understand the terms first before opting for no cost EMI plans
EMI card from Mswipe
With Mswipe EMI card you get a pre-approved credit which can be used to shop, travel or dine out from Mswipe merchants across India. There are over 5 lakh Mswipe terminals in 700+ cities in India where you can use the EMI card. The easy payment installments of 3 months and low interest rates are the highlights. What’s more, you can avail great discounts and offers on a wide range of goods. Rest assured, there are no hidden charges and zero membership fees.
emiTM cards : Pre-approved credit

Enjoy pre-approved credit for all your purchases at any Mswipe merchant. Pay back in easy instalments with low interest rates.

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Pre-approved credit limit, for every kind of expense, both planned and unplanned

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Avail offers on a wide range of goods and pay back in easy loan instalments for all your purchases

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Free lifetime membership No annual or additional charges

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NBFC EMI card is especially handy when you need access to credit the most