These schemes do tend to have a big influence if you are someone looking to
buy something, which otherwise would be well beyond your reach! You buy their
theory of ‘zero percent finance’ and pay installments which you strongly
believe are interest free! But unfortunately you end up paying more than what
you actually think you are
There is a popular saying: “There is no such thing as a free lunch!” And
Ramesh now fully endorses it! But not long before he completely disagreed on
this thanks to the zero percent finance schemes offered by some NBFCs (non
banking finance companies) with which he had bought a couple of consumer
durables for his home! He blindly believed that the zero percent finance
schemes were in fact zero percent in reality until the time one of his wise
friends enlightened him on how these schemes really work! Well, this is what he
found out
What are they?
Till a few years ago there were many such zero percent finance schemes doing
the rounds and luring the unaware buyers like Ramesh into it! Thanks to the
regulations of the Reserve Bank of India (RBI) many banks have now stopped
offering such schemes for financing consumer durables but still there are
several NBFCs who continue to offer these so-called zero percent finance
schemes! Hence the recent announcement by RBI which banned zero percent
interest loans on EMIs to credit card holders, stressing on the removal of this
practice
These schemes do tend to have a big influence if you are someone looking to
buy something, which otherwise would be well beyond your reach! You buy their
theory of ‘zero percent finance’ and pay installments which you strongly
believe are interest free! But unfortunately you end up paying more than what
you actually think you are
How do these schemes work?
Firstly these zero percent schemes have hidden costs inbuilt in them.
Perhaps the biggest loss for you would be forfeiting the cash discount on a
product that you could have otherwise got if you had bought it on full cash.
This apart you will also be paying a transaction or processing fee under the
zero percent scheme and consequently more money through advance EMIs.
For example, you decide to buy an LCD colour television
that costs around Rs. 48,000. You decide to buy it using the zero percent
finance scheme. Under this arrangement you will pay the entire cost in six EMIs
of Rs. 8,000 for six months. This works out to be Rs. 48,000 spread over 6
months. Now here’s how you end up paying more! To begin with you pay a
processing fee of Rs. 1,000. And since you are buying the LCD on a zero percent
finance scheme you are not entitled to the cash discount of Rs. 2,000!
So here’s how it looks in the above example. The LCD costs Rs. 48,000! Add
up the Rs. 1,000 processing fee that you pay initially and Rs. 2,000 that was
lost out on cash discount. A total of Rs. 3, 000! This means you get a net
finance of Rs. 45,000 only! Now you pay an EMI of Rs. 8,000 for 6 months which
totals up to Rs. 48,000. So at the end of six months you pay Rs. 3,000 more for
what you got.
Are they genuine?
It is an irrefutable fact that the demand for these schemes is highly felt
during the festive season. Market experts believe that there is a marked spurt
in sales of consumer durables due to these zero percent schemes. The consumers
wouldn’t mind opting for these schemes as it is a fact that paying by credit
cards is comparatively expensive than purchasing through these schemes. Also,
these schemes have minimal paper work, and some friendly eligibility criteria.
However, it takes some understanding of the basics to find out if they are
genuine or not
How to decide if the scheme is actually zero percent?
It is always better to ask some basic questions to find out if the zero percent
schemes are actually zero percent! Find out if you are eligible for any
discount if you pay the full amount and if there are any transaction charges
for the finance scheme and if the answer is no for both the questions then you
might consider yourself lucky that the zero percent schemes is actually zero
percent.
Are there any zero percent schemes at all?
Well there are schemes that could fall in the category of
being zero percent but these are available in a different form! There are
some credit cards where if you spend more than Rs. 5000 with it, might
allow you to pay the amount in three EMIs without any interest. However, this
would still come with a processing fee of 3-5%. Unfortunately this is the
closest you could get to a true zero per cent scheme!
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