Search
Search titles only
By:
Search titles only
By:
Forums
New posts
Search forums
What's new
New posts
Latest activity
Feedback
View Statistics
Members
Current visitors
Buy Sell Trade
WTB
Log in
Register
Search
Search titles only
By:
Search titles only
By:
New posts
Search forums
Menu
Install the app
Install
Reply to thread
Forums
The Social Lounge
General Talk
Are 0% interest EMI's really legit?
JavaScript is disabled. For a better experience, please enable JavaScript in your browser before proceeding.
You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an
alternative browser
.
Message
<blockquote data-quote="Lord Nemesis" data-source="post: 2149487" data-attributes="member: 632"><p><a href="https://www.bankbazaar.com/finance-tools/emi-calculator/why-rbi-ban-zero-percent-emi-scheme.html" target="_blank">https://www.bankbazaar.com/finance-tools/emi-calculator/why-rbi-ban-zero-percent-emi-scheme.html</a></p><p></p><p>The 0% EMI scheme is viewed as a great benefit by most consumers. However, this method of repayment consists of a shorter tenure and hidden costs. The lender receives more than the regular interest rate from the borrower and the overall expense of the loan/ credit is higher than what is initially perceived. Recognizing this issue as well as various other factors and to protect consumers, the RBI has placed a ban on this <strong>EMI scheme</strong>. This is intended to ensure transparency is the pricing mechanism.</p><p></p><p><strong>Example:</strong> Person “A” buys a phone worth Rs. 40,000 at 0% interest on EMI for a period of 6 months. EMI amount is Rs. 6,667. The processing fee is Rs. 1600 and by paying the EMI for 6 months only, the borrower is effectively paying a flat rate of interest. This means that the interest will be calculated on the full loan/ credit amount and not based on the reducing balance method. Hence, person “A” would effectively be paying a 14.15% interest, unknowingly. Whereas, if he had purchased the mobile in cash he would have received a discount on the same. Alternatively, if he had purchased on an EMI at a regular rate of interest he would only have to pay a 10- 12% interest (depending on the lender).</p><p></p><p></p><p><span style="font-size: 18px"><strong>Factors Leading to RBI Ban on 0% EMI Scheme</strong></span></p><p>The following factors contributed to the decision of RBI to ban the 0% interest on EMI scheme:</p><p></p><ul> <li data-xf-list-type="ul">Hidden Rate of Interest: Even though the scheme claims that there is 0% interest charged on the <a href="https://www.bankbazaar.com/finance-tools/emi-calculator.html" target="_blank">EMI</a>, other charges make up for the interest component. It is mostly retrieved in the form of processing fee. This indicates that the scheme is using false claims to attract borrowers and exploiting the opportunity. Most banks are not allowed to offer loans below the stipulated Base Rate.</li> <li data-xf-list-type="ul">Artificial Demand Creation: Sales were higher due to this 0% interest on <em>EMI scheme</em>. This lead to artificial inflation of demand through purchases driven by sentiment. The ultimate consequence of this would be an economy with low growth and high rate of inflation. Once the 0% EMI schemes were banned, the sale of a lot of high-end consumer goods have declined.</li> <li data-xf-list-type="ul">Disparity in Pricing: The price of a product varies depending on the mode of payment – whether the payment is made via debit card, cash or credit card. Usually, the customer receives a discount when he/she opts for upfront payment in cash, for the product. This benefit is not offered to those who opt for an <u>EMI scheme</u> for repayment. Merchants also levy a transaction fee on those who wish to pay by debit/ credit card. Such pricing disparity also proved to be a major problem under the 0% EMI scheme.</li> </ul></blockquote><p></p>
[QUOTE="Lord Nemesis, post: 2149487, member: 632"] [URL]https://www.bankbazaar.com/finance-tools/emi-calculator/why-rbi-ban-zero-percent-emi-scheme.html[/URL] The 0% EMI scheme is viewed as a great benefit by most consumers. However, this method of repayment consists of a shorter tenure and hidden costs. The lender receives more than the regular interest rate from the borrower and the overall expense of the loan/ credit is higher than what is initially perceived. Recognizing this issue as well as various other factors and to protect consumers, the RBI has placed a ban on this [B]EMI scheme[/B]. This is intended to ensure transparency is the pricing mechanism. [B]Example:[/B] Person “A” buys a phone worth Rs. 40,000 at 0% interest on EMI for a period of 6 months. EMI amount is Rs. 6,667. The processing fee is Rs. 1600 and by paying the EMI for 6 months only, the borrower is effectively paying a flat rate of interest. This means that the interest will be calculated on the full loan/ credit amount and not based on the reducing balance method. Hence, person “A” would effectively be paying a 14.15% interest, unknowingly. Whereas, if he had purchased the mobile in cash he would have received a discount on the same. Alternatively, if he had purchased on an EMI at a regular rate of interest he would only have to pay a 10- 12% interest (depending on the lender). [SIZE=5][B]Factors Leading to RBI Ban on 0% EMI Scheme[/B][/SIZE] The following factors contributed to the decision of RBI to ban the 0% interest on EMI scheme: [LIST] [*]Hidden Rate of Interest: Even though the scheme claims that there is 0% interest charged on the [URL='https://www.bankbazaar.com/finance-tools/emi-calculator.html']EMI[/URL], other charges make up for the interest component. It is mostly retrieved in the form of processing fee. This indicates that the scheme is using false claims to attract borrowers and exploiting the opportunity. Most banks are not allowed to offer loans below the stipulated Base Rate. [*]Artificial Demand Creation: Sales were higher due to this 0% interest on [I]EMI scheme[/I]. This lead to artificial inflation of demand through purchases driven by sentiment. The ultimate consequence of this would be an economy with low growth and high rate of inflation. Once the 0% EMI schemes were banned, the sale of a lot of high-end consumer goods have declined. [*]Disparity in Pricing: The price of a product varies depending on the mode of payment – whether the payment is made via debit card, cash or credit card. Usually, the customer receives a discount when he/she opts for upfront payment in cash, for the product. This benefit is not offered to those who opt for an [U]EMI scheme[/U] for repayment. Merchants also levy a transaction fee on those who wish to pay by debit/ credit card. Such pricing disparity also proved to be a major problem under the 0% EMI scheme. [/LIST] [/QUOTE]
Insert quotes…
Verification
Post reply
Forums
The Social Lounge
General Talk
Are 0% interest EMI's really legit?
Top
Bottom