To Know – The True Cost Of Your ‘No-Cost Emi’ Purchase?
In our country, India, digital payments are intended to be part of transactions. Whether young and old, everybody is gradually becoming accustomed to this new normal. People are increasingly opting for plastic money. The customers will almost always choose to pay using their credit cards, regardless of how large the transaction amount is. Let’s check out some concepts which will help us understand the eligibility of availing of any loan.
A credit score is the first criterion that determines eligibility for any loan. It is a three-digit number of an individual’s whole credit history that is generated by CIBIL. Credit Information Bureau, India Limited is abbreviated as CIBIL. This data is on the information provided to CIBIL by various banks and financial institutions monthly.
A credit line, also known as a line of credit (LOC), is a standing loan that allows people, corporations, and other organizations to borrow money when they need it, pay it back, and keep borrowing without qualifying for another loan. An evergreen loan is a term used to describe a line of credit. A credit line can be in the form of a credit card, a home equity line of credit (HELOC), or a small company credit line.
Many online and offline stores offer ‘No-cost EMI’ or ‘Zero Cost EMI’ on products like mobile phones, electronic appliances, and other items as the festival season approaches.
While purchasing a product on equated monthly installments (EMI) relieves the pressure of paying a large sum of money upfront, it is to understand that these no cost emi programs usually come with a cost. As a result, it’s critical to understand the cost of such ‘no-cost EMI’/’zero-cost EMI’ schemes. These systems operate in two ways.
Here’s how these two systems function in practice:
- When a discount is the same as interest.
The most common technique for online e-tailers to provide ‘No-cost EMI’ is to offer discounts equal to the total amount of interest to be paid. Let’s say the smartphone you wish to buy costs Rs 15,000 (about). The interest rate charged under the 3month EMI plan is 15%, and you would be required to pay Rs 2,250 in interest.
You pay the phone’s original price in installments: the store receives the discounted price, and the remainder (i.e., the ‘discount amount’) the loan’s interest. In reality, the price you pay splits between the amount you pay the store and the amount you pay the lender in interest.
- When the amount of interest adds to the product’s price
Let’s say the item costs Rs 15,000 in total. This product is available for Rs 17,250 under the retailer’s ‘No-cost EMI’ plan. The interest of Rs 2,250 is the price of your purchase as you repay the loan. As a result, if you have chosen a three-month EMI plan, the total amount due will be Rs 5,750.
The term “no-cost EMIs” is a misnomer because the interest cost gets considered into EMI, but the cost breakup may not be readily accessible to the customer.