The story behind zero per cent interest EMI schemes

Sep 30 2013, 13:06 IST
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RBI has noted that the interest element is often camouflaged and passed on to the customer as processing fee. RBI has noted that the interest element is often camouflaged and passed on to the customer as processing fee.
SummaryHere's a look at how zero per cent EMI schemes work, and if there is any benefit in them.

manufacturers say that it won’t impact much.

“While only 25 per cent of consumer durable secondary sale is through consumer finance, 75 - 80 per cent of automobile secondary sale is through consumer finance. Hence, impact is more on automobiles not durables. Also, consumer durable finance is primarily through NBFCs, not banks, while automobile finance is routed majorly through banks,” said Deba Ghoshal, marketing head, unitary product business group, Voltas.

Other than these, the RBI has also instructed banks to put a curb on the practice where merchant establishments levy fee as a percentage of the transaction value as charges on customers while they make payments for purchase through debit cards. “Such fee are not justifiable,” said RBI adding that this calls for termination of relationship of bank with such establishments.

The RBI has raised an alarm once again to protect consumers but one needs to be careful on occasions when retailers dangle schemes which may look attractive but may ultimately prove to be a bad financial decision.

Buyers, therefore, need to be very careful before falling into the zero per cent interest rate trap and spend some time doing their maths in order to understand how much they are paying for a facility that looks very attractive from the outset.

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