Zero percent interest bears the cost

One day, a famous mathematician called a number meeting. All of the numbers except Zero came for the meeting. Zero was hiding in an unknown location. The mathematician ordered all the numbers: “Wherever Zero is, I want you to go find him and bring him to this meeting immediately.” All the numbers started looking for Zero. Finally, after a long search, they found him hidden behind a tree. The numbers caught up with him and presented him to the mathematician.

The mathematician said, “Why were you hiding? Why were you afraid to attend the numbers meeting?

Zero started to cry and said, “Sir, I am Zero. According to people, I have no value and therefore no one cares or respects me. It hurts me a lot. This is the reason. I was not inclined to attend. Meeting. “

The mathematician thought for a moment and called number One (1) and asked him to stand in front of him. Looking at Zero, the mathematician asked him, “Tell me, Zero, what is the value of this number?”

“One,” Zero replied.

The mathematician then asked Zero to stand to the right of One. Looking at the other numbers, he asked them, “What is the value of this number?

“Ten,” all of the numbers answered in unison.

The mathematician then asked all the zeros to be placed to the right of one, one after the other. Each time a zero was added to the right of one, the mathematician would ask the other numbers for the value of one. As the number of zeros increased, the value of Un also increased, i.e. one hundred, one thousand, ten thousand, one lakh and so on.

The mathematician said to the zeros: “When each of you stood to the right of the One, one after the other, the value of the One increased. Any number on its own has very little value. Its value only increases when another number is placed next to it. . You think that on your own you have very little value. But when you come up with another number, you not only increase your own value but also that of the other number. Didn’t I just prove it to you? “

Zero understood the point raised by the mathematician. He was glad that people’s idea that Zero was worthless was baseless and wrong.

The point of sharing this story is that nowadays we find that social media and other media channels (electronic and print) are in e range of consumers. Notably, the holiday season has always been an important one for brands, especially for e-commerce players who line up great discounts, are looking for more retail brands to partner up and step up their product offerings. One of the attractions that they sell is the “no-charge IME” or the finance facility for purchasing a product at a zero percent interest rate.

How is it possible for a business to offer a loan facility without charging interest?

It’s possible because zero percent financing comes at a cost! Let me share an example of an acquaintance of mine who was drawn to the zero percent offer but was billed up front as a processing fee to take advantage of the offer.

He approached a dealer to purchase a laptop computer costing around Rs. 45,000. The zero percent (interest-free) offer called for payment to be made in six Equivalent Monthly Installments (EMI) of Rs 7,500. But he was asked to pay 1000 rupees as a processing fee to take advantage of the offer. Not only that, he also learned that the laptop was available at a discount of 2,500 rupees.

So, in the context of the cash discount and processing fee, he actually had a financing facility of Rs 41,500, but had to repay Rs 45,000. This means he was paying 3,500 rupees for one. zero percent interest offer!

Thus, these zero percent offers are loaded with invisible costs. It is simply a gimmick put together through powerful advertising campaigns jointly designed by manufacturers and dealers to attract customers.

What are free IMEs?

Some companies offer loan offers at zero percent interest rate and some call it a free EMI offer. They play around with the nomenclature. To take it further, the Toll-Free EMI is an interconnected system between a retailer, bank / financial institution and the consumer. The consumer can buy products and pay for them in monthly installments without any additional interest cost, the bank finances these purchases and earns interest income and the retailer shares part of its margins with the bank and the retailer gets a raise. Sales. Here, consumers end up paying a fee based on the price of the product. Retailers generally offer two options to customers. If a consumer wishes to benefit from a certain discount, he must make an outright purchase of the product. In a no-cost EMI option, the retailer offers the same product at full price (without any discount) with an EMI option.

Notably, it is possible for retailers to charge the interest component in the actual price of the product and present a free IME for consumers to take advantage of the flexible payment option.

Is the zero percent or no-fee EMI facility backed by the Reserve Bank of India (RBI)?

No, the practice has no legal support. In the RBI books, the concept of zero percent interest or no charge IME does not exist. Thus, fair practices require that consumers be made aware by companies of the value of Zero in their offers. Otherwise, it goes against the basic principle of the Code of Good Commercial Practices and would amount to exploiting vulnerable consumers.

What are the costs if a consumer delays paying the EMI?

If a consumer is unable to meet the deadline for full loan repayment, interest may be charged. These interest rates are usually above 20 percent because they will be charged on the original loan amount and not on the outstanding balance amount.

So what are the precautions to be taken while availing the interest free or cost free EMI facility?

The main thing is to understand the fine print of the installation. Let it be clear that there is no such thing as a free meal in the financial industry. It’s a gimmick and in almost all cases the consumer pays the full price of the product, plus taxes and other applicable fees. However, in the absence of adequate finances, a consumer has the opportunity to purchase useful products that add value to their life.

About Mallory Brown

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