Zero percent interest schemes - reality

Image Credit - Pixabay

Before starting this article I must say that "there is no such thing as a free lunch." You are smart enough to understand the meaning of the sentence. In this article you are going to read the facts about 0% interest schemes. If you are interested in buying something then you must come across a zero percent scheme. It is believed that zero percent schemes are interest free. But unfortunately this is a myth and with paying more than what you actually think you are paying. Such schemes you generally find on home appliances and gadgets.

Short information

Due to strict regulations of RBI many banks have stopped offering such schemes. There are several NBFCs (non banking finance companies) still offer this so called zero percent finance schemes. If you are willing to purchase some consumer goods then this zero no interest scheme comes in front of you and you take a loan to buy the desired product. As per these schemes, customers will only pay back the amount of the said goods and nothing additional.

Working

The zero percent scheme have hidden cost in built in them. If you opt such scheme you lose the cash discount on product that you could have purchase the same by paying cash. You have to pay the transaction or processing fee under the zero percent scheme and consequently more money through advance EMIs.

Example

In a shop there is smartphone costing 72000 rupees. If you purchase the same by paying whole cash then you are eligible for rupees 5000 discount. But if you take a zero percent finance scheme then you are not eligible for this discount. You think that you are paying 12000 rupees per month for 6 months by opting the zero percent finance scheme. But you lose 5000 rupees discount. No processing fees of 1000 rupees is also charged from you. Thus you are paying 72000 rupees as cost of product plus 1000 rupees of processing charge. But actually you are losing rupees 5000 cash discount and paying rupees 1000 as processing fees. Actually you are getting the loan of rupees 66000 only. But you are paying complete 72000 rupees means the finance company is earning 6000 rupees which you are paying.