Earn exciting rewards on signing up! 🎁
Financial innovation has made life so much simpler. Whenever we wish to buy something but do not have the money, EMIs always come to our rescue. By breaking up the payment into smaller instalments, we ease the burden on our bank balance. Obviously, there’s a little extra that we end up paying in the form of interest. While no one likes hefty interest rates, the idea of not spending the entire paycheck at once is a huge relief. All of this changed a while ago when No-Cost EMI got introduced.
Gone are the days of sky-high interest rates and financing charges. No-Cost EMI is free. Or is it?
On the face of it, No-Cost EMI means that you have to pay no interest when you take a loan. Simply put, financing companies define it as a zero cost EMI for the cost of the product. This ensures that your purchase incurs no additional fees. Sounds great, right?
The purpose of these schemes is solely to help companies market their financial services to potential customers. However, after the Reserve Bank of India banned all 0% EMI schemes, financial companies found a workaround.
These schemes can work in two ways. Let us look at how both variations calculate the total cost and EMI amounts.
It is now clear that either way you look at it, the financer always charges interest in some form or the other. The term “no-cost” is thus nothing but a marketing gimmick to encourage the buyers to purchase more products on EMI. The more sales that take place through financing, the higher the finance provider’s revenue.
Equal Monthly Installments (EMI) is a financial innovation that aims to make financing readily available and easy to use for all kinds of customers. Similarly, No-Cost EMI also solves the same purpose while at the same time finding a way to work around RBI’s stance against zero cost EMIs.
Like all other EMI schemes, No-Cost EMI suffers from the same limitations.
The only difference between traditional EMI and No-Cost EMI is that with these EMIs, the interest charged is often hidden, because of which a consumer assumes that it is free. In reality, both forms of EMI extract interest in some form or the other from the consumers. In the end, traditional EMIs at discounted prices and No-Cost EMIs at list prices boil down to the same thing — the consumer is the only one who bears the cost.
Bonds are a financial investment that signifies a loan given by a corporation or government. Read on to understand all about them.
Explore this article to understand demat and trading accounts and find out the differences between the two to learn to invest better.
Explore the role of depositories in the Indian financial system – how they work and what they do and also understand what are NSDL and CDSL.