"In the zero percent EMI schemes offered on credit card outstandings, the interest element is often camouflaged and passed on to customer in the form of processing fee," the circular had said.
No-Cost EMI actually means zero percent interest
Experts say No-Cost EMIs have high interest rates of 15-24%, which are often not paid by customers.
For example, e-tailers offer an amount equal to the actual interest as discount/cashback to buyers.
While the customer, in most cases, pays only the original price of the product with some discount/cashback and no processing fee, e-commerce websites pay the discounted amount (actual interest) to the financers.
Products with No-Cost EMI offers are cheaper than others
Another way in which No-Cost EMIs work is by adding the actual interest cost to the price of the products; this is mostly done by offline retailers.
In this case, customers end up paying a much higher price for a product they would have gotten for cheaper had they paid the amount upfront.
However, sometimes, product manufacturers also bear the cost of Zero-Cost EMIs.
Buyers think they can avail No-Cost EMI on any product
Zero-Cost EMI loan offers are marketing or sales promotion strategies by manufacturers or retailers who either want to push their products or sell their stocks faster.
Therefore, these schemes are available only for select products and brands and not all products.
No-Cost EMI loans are not offered on a wide range of products; usually, one can find these offers on expensive, higher-end products.
No-Cost, Zero-Interest EMIs are flexible and easy on the pocket
No-Cost EMI loans aren't always an affordable option as most banks, credit card companies, or financers offering these schemes have maximum repayment tenure of 12 months.
Sometimes, the repayment tenure could be as short as 3 months, even for a very expensive product, which means, the buyers end up paying higher EMIs. In some cases, customers are required to make down payment too.