Buying durables through no-cost EMIs

The no-cost scheme works like a subvention offered by the seller

If you are looking to upgrade to a smart LED UHD television or pick up a new refrigerator or washing machine this festival season, you can buy durables at no-cost EMIs. Wondering what this scheme is all about? Well, it is the revamped version of the erstwhile zero per cent EMI scheme. The RBI had clamped down on that earlier scheme as it ruled that lending cannot be for free.

Under a no-cost EMI, interest is charged. But this interest is not an additional outgo from your hands over and above the sale price. Instead, the same is adjusted from the sale price of the product. Thus, it is like a subvention given to you by the seller/ manufacturer.

How to get no-cost EMIs

If you are buying online, all you need is a credit card to buy a product under no-cost EMIs. Most banks have tie-ups with online shopping portals such as Amazon and Flipkart which offer no-cost EMI schemes. For instance, Amazon has partnered with 11 banks — ICICI Bank, HDFC Bank, Citibank, SBI Card, Standard Chartered Bank, Kotak Mahindra Bank, Axis Bank, HSBC Bank, YES Bank, RBL and IndusInd Bank. Likewise, Flipkart offers the no-cost EMI option to holders of SBI, Kotak Mahindra Bank, HDFC Bank, Citibank and ICICI Bank credit cards.

Besides, NBFCs such as Bajaj Finserv and Capital First offer you an EMI card, using which you can buy products that are eligible for no-cost EMI scheme. An EMI card is a pre-approved loan that can be used to buy consumer durables. Bajaj’s EMI card, for instance, has a one-year validity and you can use the loan amount to buy goods over a period of 12 months. Bajaj EMI card holders can use it to buy products on Flipkart's portal.

Even if you prefer to buy from a brick and mortar retail store, you can still check for the EMI schemes offered by these financiers. Bajaj Finserv and Capital First have both tied up with retail chains such Tata’s Croma to offer the no-cost EMI scheme to walk-in customers too. The minimum loan amount varies across financiers. For instance, ₹4,000 is the minimum amount for Bajaj Finserv.

Charges

If you hold a valid credit card and use it to buy products that qualify under the scheme, you dont have to pay any additional cost. However if you walk into a retail store and want to apply for a no-cost EMI, then you will have to shell out processing fee, ranging between ₹550 and ₹750.

Likewise, the EMI cards are not free, though. Bajaj’s EMI card comes at annual cost of ₹650. However, Bajaj Finserv insists on a CIBIL score of at least 780 to qualify for the EMI card, besides other routine criteria such as employment, income proof, and so on. Capital First’s Easy Buy EMI card is given to its existing consumer durable and two-wheeler loan customers who have a good repayment track record.

How it works

Say you are buying a refrigerator that costs ₹30,000 and the seller gives you a no-cost EMI discount of ₹1,000. This means that out of your total outgo of ₹30,000, ₹29,000 will go to the seller and the balance ₹1,000 will be debited from your account by the bank towards interest charges. However, under the GST regime you may have to pay service tax on the notional interest (₹1,000) component.

In reality, the discount (that is, the interest) ranges between 12 per cent and 15 per cent, and varies with the tenure. The tenure may be spread over three to 24 months depending on the product, seller and financier.

For the manufacturers/sellers, this scheme helps boost sales by reducing the upfront cost of ownership for buyers. For the financiers, it helps expand their loan book. Since some of the finance companies extend no-cost EMI loans to existing customers only, it keeps risks reasonably low as their track record is known. For customers, the no-cost EMI helps them buy aspirational consumer durables at the selling price, without the burden of additional interest.

Only on certain brands

However, customers need to keep in mind a few factors. Although there is no extra interest charged, the processing fee, EMI card joining fee, renewal fee, and so on, are additional charges you may have to incur. Two, the no-cost EMI scheme may be available only on a limited range of products.

Given that the brand owner/manufacturer and the seller subsidise the interest component, the scheme is limited to specific brands, products and retail outlets. If you want to buy an item for which a no-cost EMI scheme is not available, a regular consumer durable loan — costing between 11 per cent and 16 per cent — is an option to consider.

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