Zero% EMI Loans – Some Important Points to ConsiderAdmin@ | May 21, 2018 | 0 | Finance
In this highly competitive era, financial institutions are fighting with each other to attract the most number of customers towards their products. In order to attract the customer, they are offering various types of freebies and discounts. Some claim to offer Best Personal Loans for Bad Credit others are promoting the lowest interest rates on the unsecured Personal Loan. One of the most popular offerings that have come up in this process is Zero% EMI (Equated Monthly Instalment) Loans.
What is Zero% EMI Loans?
As the name is self-explanatory, Zero% EMI loans are a form of an unsecured Personal Loan, wherein the customer need not pay any interest on the amount borrowed. The customer only needs to pay the principal amount which is divided into a fixed number of EMIs.
In India, Zero% EMI loans are usually offered for availing finance against consumer electronics and durables. You may find the offer irresistible as it would enable you to purchase something which would otherwise have been beyond your reach. But if you would take a moment and carefully study the loan proposal, you would remember the old saying “There is no such thing as a Free Lunch.”
Until a few years ago almost all financial institutions used to offer the scheme of “Zero% EMI,” but after strict new guidelines from the Reserve Bank of India, most of them discontinued it. Now only a few Non-Banking Financial Companies (NBFCs) promote this product.
How Does This Scheme Work?
When you go out to buy a new electronic product, you can see many posters from various lenders inviting you to avail Zero% EMI Loans against your purchase. You might think that it is a good opportunity for you to save some money which would otherwise have to be paid as interest. But in reality, these schemes have inbuilt hidden costs which sometimes make you pay more than what you have actually saved.
Points to Remember
Following are a few points that you must understand before opting for any such scheme:
- If you opt for a Zero% EMI Loan, then you would have to forego the cash discount you could have availed by making the payment in full. So, unless you absolutely need it, you should try and pay in cash.
- Many such schemes have hidden costs such as processing charges or file charges that can go up to 4-5%. So, you must carefully understand the scheme related documents otherwise you might end up paying much more than what you have managed to save.
- It’s not that your entire loan amount is converted into EMIs. You will need to pay for filing and processing charges along with a number of EMIs in advance, so in reality, you would be paying a considerable amount upfront in case of a Zero% EMI Loan.
- Additionally, the financial institution extending this facility would not be offering this facility for products belonging to every brand. They offer this facility for only a few selected brands, for other brands they charge you usual rate of interest. So, you will be forced to buy a particular brand’s products only, even if they are more expensive. As a result, you would be spending much more than you have managed to save.
- As this loan product is a kind of unsecured loan, so, financial institutions have some strict guidelines for you to be eligible. You need to have a good credit score and an existing credit history to qualify for this loan. So, it might happen that even if you desperately want this loan, you may not be able to get it.
There’s Still Hope!
But not all is lost with Zero% loans; they do offer specific benefits to you as well:
- If you study the scheme documents carefully, you can, in fact, a substantial amount of the interest payment. Many financial institutions do in fact offer Zero% EMI Loan, as they are reimbursed by that particular brand whose product you are buying. So, you end up emerging as winner amidst all this.
- Zero% EMI Loans offer a cheaper source of funding as compared to Credit Cards. So, rather than making the purchase through a Credit Card, you can avail a Zero% EMI Loan to buy the product.
- This finance product has minimal paperwork involved and is sanctioned on an immediate basis. So, you can make the purchase instantly and start enjoying your new product.
Overall, it requires due diligence on your part to ensure that the scheme being offered to you is, in fact, Zero% EMI Loan. A little patience and care from your side can help you save a significant amount of money and buy the products that you could not otherwise afford.
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