Can you still get a zero-percent EMI?
Despite the RBI ban on 0% interest schemes, many retailers appear continue to operate as before. The processing fee, if charged at all, is the interest rate in disguise.
The Reserve Bank of India (RBI) recently asked all banks to stop offering 0% schemes. It had said, “Since the very concept of zero percent interest is non-existent and fair practice demands that the processing charge and RoI charged should be kept uniform product/segment wise, irrespective of the sourcing channel, such schemes only serve the purpose of alluring and exploiting the vulnerable customers.” So we went online looking to see if the RBI’s demands were met. Here’s what we came back with:
Almost as ‘good’ as before
The problem that the RBI has with 0% interest schemes has to do with transparency (see ‘Why did RBI place the ban?’ below). If you understand the charges of an EMI scheme, there perhaps isn’t harm in buying into one. Retailers seem keen on continuing in this manner too. Here’s how they operate/what you need to watch out for:
No specified interest rate: Aside from the removal of ‘0%’, all retailers we looked at continue to operate as before. Not a single one that continues to offer a credit card EMI scheme tells you the interest rate, even though the RBI clearly demands that it be mentioned. Croma, for example, says ‘There are no additional fees charged by www.cromaretail.com for availing EMI. Only a bank processing fees is needed to be paid to the customer to avail this facility. Information about this bank processing fees is highlighted when a particular payment duration is selected.’
No uniformity: The processing fees and interest rate were to be kept uniform for each product or segment, but it isn’t the case. Even though only HDFC is providing the scheme, the charges differ with each retailer, as you can see in the table below.
Disguised as interest: The processing fee, which is basically the interest rate in disguise, is all that’s mentioned, just as before. Even retailers that levy this fee every month, which makes it even clearer that it is interest, call it a processing fee (see table below). Vijay Sales is one retailer that charges the processing fee upfront.
Absolutely free: On some deals, you can continue to pay absolutely nothing – no processing fee or interest – on your order for EMIs up to six months. We’ve found no evidence of an inside charge by comparing prices with retailers that were charging an interest rate/processing fee.
|Retailers||Card||Tenure (months)||Processing fee (Rs)||Upfront payment||Zero charge||Same as before?|
|Croma||HDFC Bank||3, 6, 9, 12||15%, 12%, 10%, 7.5%||Yes||None||Yes|
|Flipkart||HDFC Bank||3, 6, 9, 12||100, 300, 1200, 1500||No||None||Yes|
|Homeshop 18||HDFC Bank||3, 6, 9, 12||0, 2.5%, 5%, 7.5%||No||Yes, 3 months||Yes|
|Snapdeal||HDFC Bank||3, 6, 9||0, 0, 1000||No||Yes, 3 and 6 months||9-month tenure new|
|Vijay Sales||HDFC Bank||3, 6, 9||350, 650, 750||Yes||None||Yes|
Why did RBI place the ban?
Transparency is the big issue with 0% interest schemes. A typical 0% scheme works like this: Any item over say, Rs5,000, is eligible for the scheme. Retailers charge (what may have seemed like) a flat processing fee of Rs100 to Rs1500, depending on the tenure or no processing fee at all. The RBI has pointed out two hidden charges under this system:
Upfront interest: The interest rate was actually disguised as a processing fee. If you pay Rs500 so that you can pay a Rs10,000 bill in six installments, you’ve actually paid interest at the rate of 11% in the first month upfront. Some retailers would charge a flat fee, which would work out cheaper in the case of expensive products, while others would charge a percentage of the bill, which would be comparatively expensive if the product was costly.
Hiked rates: RBI also stressed that if consumers were to make full payment on purchase, they would have been able to ask for a discount. If you opted for the 0% EMI, you would have to pay the sticker price. With online retailers, on the other hand, everyone paid the same price, regardless of whether the EMI route was selected. There are suspicions that retailers were paying banks an interest rate on behalf of the customer. For the 0% EMI scheme to work, therefore, we may have all been paying higher prices.