Unveiling The Reality Of Zero Cost EMI, A Look Into The Hidden Charges Involved

Zero Cost EMI schemes are lucrative options that claim to provide consumers an opportunity to make their purchases on credit without having to pay any interest charges for it.

When we see an expensive appliance or our favourite gadget available on credit without any interest charge on it, it seems like a too-good-to-be-true situation. The reality is that it is!

Zero Cost EMI (Equated Monthly Installment) schemes are lucrative options that claim to provide consumers an opportunity to make their purchases on credit without having to pay any interest charges for availing the credit. In recent years, these payment plans have become a popular choice in the retail and e-commerce sectors.

However, what they don’t clearly mention is the hidden charges involved in these schemes. Let’s take a closer look and unveil some of the camouflaged costs associated with the zero-cost EMI schemes.

Processing Fees

While these payment plans often don’t include any interest charges, a lot of the zero-cost EMI plans levy processing fees for their usage. This fee can be a fixed amount or a percentage of the total purchase amount. Either way, it is one of the crucial factors for consumers to look into to understand exactly how economical the payment plan is for them. 

Pre-closure Penalties

Just like on deposits and loans, some financial institutions don’t prefer early repayment of the EMIs. In such instances, if you wish to repay your EMIs before the tenure time period, the credit provider might impose penalties on you pre-closure of the loan. This fails the purpose of paying zero interest to avail credit if you don’t want to keep paying the installments for the pre-decided tenure. 

Tax

Certain EMI plans might not disclose taxes like Goods and Services Tax (GST) in the installment calculation, which will end up costing the consumer and nullify the point of zero interest on the credit. These taxes are levied on the interest payable for the loan.

Penalties On Missing Installments

Often credit provided through zero-cost EMIs can include severe penalties for missing an installment payment. So, if you fail to submit an installment in time, it is possible that you open yourself to significant penalties thus making the EMI plan really costly. Therefore, always be sure to not miss an installment deadline. 

Elevated Product Prices

Sometimes, sellers increase the actual price of products if they are offering zero-cost EMI plans to purchase the goods. This allows them to fool customers into thinking that it is an economical purchase and recover the interest charges from them, eventually failing the purpose of the zero-interest payment plans. 

Credit Score

Banks often run a query about the consumer’s credit score before allowing them to avail the no-cost EMIs. Repeated inquiries about such payment plans can negatively impact an individual’s CIBIL score, thus affecting their financial health in the long run.

This doesn’t mean these schemes can’t be beneficial for consumers, but like everything, they require due diligence from the consumer end. To make an informed decision, educate yourself about the scheme you are availing of and read through the terms and conditions as often these charges are hidden in the fine print. This will help you enjoy such zero-interest schemes without affecting your financial health.