Here’s Why The 0% Interest EMI Schemes Were Scrapped

Over the past 6 months, various companies including Apple, Samsung and Micromax went on an aggressive marketing drive that was based around the “0% EMI” tagline. Consumers, young and old alike, were attracted by the possibility of buying the device of their choice, by paying small amounts of money over a prolonged period of time. That too without any overhead costs. Who wouldn’t?

So when the RBI on Wednesday banned zero per cent interest rate EMI schemes for purchase of consumer goods, it came as a shock for many people.

What would possibly have been wrong? The companies were sacrificing their interest money just so we could get our dream products easily no? No.

The very concept of zero per cent interest “is non-existent,” the RBI said. So how were the companies offering such schemes?

The answer here lies in that “negligible” processing fee that the companies/showrooms charged when you opted for the EMI schemes. In the zero per cent EMI schemes offered on credit card outstandings, the interest element is often camouflaged and passed on to customer in the form of processing fee.

Explaining the zero per cent EMI schemes on credit cards, Gaurav Mashruwala, a certified financial planner, said, “When a person buys a TV set for Rs 60,000 and makes full payment in cash, the dealer gives him a discount say of Rs 5,000. However, when the same TV is bought in instalments with a credit card, he is not entitled to any discount which is the earning for the bank.”

As BankBazaar explains, these zero percent schemes have hidden costs inbuilt in them. Perhaps the biggest loss for you would be forfeiting the cash discount on a product that you could have otherwise got if you had bought it on full cash. This apart you will also be paying a transaction or processing fee under the zero percent scheme and consequently more money through advance EMIs.

For example, you decide to buy an LCD colour television that costs around Rs. 48,000. You decide to buy it using the zero percent finance scheme. Under this arrangement you will pay the entire cost in six EMIs of Rs. 8,000 for six months. This works out to be Rs. 48,000 spread over 6 months. Now here’s how you end up paying more! To begin with you pay a processing fee of Rs. 1,000. And since you are buying the LCD on a zero percent finance scheme you are not entitled to the cash discount of Rs. 2,000!

So here’s how it looks in the above example. The LCD costs Rs. 48,000! Add up the Rs. 1,000 processing fee that you pay initially and Rs. 2,000 that was lost out on cash discount. A total of Rs. 3, 000! This means you get a net finance of Rs. 45,000 only! Now you pay an EMI of Rs. 8,000 for 6 months which totals up to Rs. 48,000. So at the end of six months you pay Rs. 3,000 more for what you got.

So ultimately, it all came down to false advertising and clever marketing. The consumer was led to believe that he/she was getting a fantastic deal whereas the company was earning way more than they would in case of a down payment. These schemes helped companies attain double digit growth as far sales were concerned.

No wonder they are aggrieved by the RBI’s decision. Well done, we say.


  • AnuGupta

    0% interest rates loans are sometimes not the real deals. But yes, getting comparatively lowest interest rate loans is possible. This is due to that fact that competition is high in banks for giving out http://www.dealsofloan.com and meet the targeted estimation for the year.

  • FardinDurani

    lets take an example.. you booking a flight online.. rates are very competitive.. the difference is less than 10 rupees but still customer go for the lowest one… Suppose he got the ticket for 6000.. now at the time of billing.. he choose to pay through EMI .. Now he has three options.. (pay in 3 months with 0% interest i.e 2000/month total=6000 ) or ( pay in 6 months with 12% interest total more than 6000)… But now RBI is saying no 0% even if ur paying in days.. which means profit to banks only.. not aam admi…. Now if we choose to pay in EMI we have to pay some thing more.. people are not stupid.. stop interest you will see world will become a better place to live.. prices will fall like anything.. its banks which adds to inflation not people..

  • Salman Ashik Kodiyadan

    Those who have money to pay full amount, please shut your mouths.
    For people like me can’t afford 40K+ .So in case of flipkart it only charges 1500 for a 12 month scheme and has the best price online so in my opinion for people like me it is a huge loss. I was going to get LG G2 via Flipkart but now it shows only HDFC provides the EMI option so RBI really spoiled my dream. I don’t know weather the weather the decision is good or bad for me it is a huge slap to my dream. :( :(

  • Pranab Padhi

    are you mad ,,,,,,, you should have consider the usage of 5 month and 29 days to it …..Then analyze it……

  • Soumitra

    But what if companies are providing 0%Interest on EMI and 0 processing fee. There are lots of retailers like Jumbo Electronics and SPICE Hotspot; they are providing 0% Interest On the EMI amount + no processing fee. You just pay in EMI the exact amount of the product.

  • Prasad

    But this is not a good decision for most. And more over, that logic may not be true always. When I compare two major online shops in India, if one is offering with EMIs and other with out EMI and if the price is same, obviously the customer is at the advantage if he goes with the one offering EMIs. I have seen this consistently with Flipkart and Snapdeal. Flipkart never offered 0% EMIs and Snapdeal was always offering at 0% EMIs with prices less than Flipkart.

    • Shivaank

      EMi’s will still be offered. Only 0% interest EMI’s have been removed.

    • Samish1995

      no, i take this in positive way because in 0% EMI company give total amount which already includes interest amount.That is reason RBI remove 0% EMI to stop fooling people with 0% Schemes…..

  • Naveen

    But it does help people who cannot pay the full amount as cash.

    • Shivaank

      EMI’s haven’t been scrapped altogether. “Interest free” EMI’s have been removed. You can still opt for any EMI plan, but will have to pay an interest on that. Even then, the interest will be less than what these schemes would’ve cost you.

      • amartya baidya

        Any idea about how the schemes like the samsung Note 2 0%EMI 0% Processing fee happened?

  • Gaurav

    totally usless decision…not every person can pay Rs48000 for one time but every one wants a big LCD… EMI helped people to Own new things which they can not afford by one time payment by paying for it in EMI but now …. Totally useless decision…

    • Shivaank

      You can still buy any product via EMI’s, by paying an interest on it. You’ll end up paying lesser than you already do.

  • Nikhilesh Sharma

    It’s an age old marketing trick. Even cars were sold like this.

  • Dilip

    Cheap marketing by world renowned companies…… It a shame

  • http://flickr.com/almostinfamous/ almostinfamous

    what you say would be correct for short term payments on high value items with an initial down-payment. if you take a 12-month zero interest, zero down-payment EMI, despite processing fees etc, there is a fall in the value of the currency due to (double-digit) inflation you are actually getting a significant discount.

    • Shivaank

      You have a valid point, yes. But conversely, an increase in the value of the currency will do more damage. You can’t always predict the future no? :)

      • http://flickr.com/almostinfamous/ almostinfamous

        in a market economy with any net GDP growth, there is a 99.99% chance of positive net inflation, which reduces the value of currency.(think what you could buy with Rs. 10/- when you were a kid vs. what you can get now) if the net GDP is contracting, then we’re probably having far more serious problems than 0% EMIs :D

        • Shivaank

          If we’re talking about the time gap between when I was a kid and now, then yes I agree. As the RBI mentioned, when these companies offer down payment free EMI’s, they levy a higher processing fee. It called for processing fees to be uniform across price points. Again, I’m not a commerce man, as you seem to be, so I value your input on this :)

        • http://flickr.com/almostinfamous/ almostinfamous

          i am not a commerce man, though i have dabbled in economics. i agree with both the RBI’s decision (though they don’t care of course :D) and your article, just wanted to post an alternative way the scheme could work.

          PS: – glad to find a civil discussion online these days :)

        • Shivaank

          Glad to have a meaningful discussion here too! :)

  • Sanchit SaNy Sharma

    well still consumers like me who cant pay 40 K + at once for any product
    have to rely upon these schemes even if we pay 2-3k more,
    dats our only way to own em i guess.. :)

    • aditya bajaj

      But I u save those small amount of money every month…instead of oaying it as an EMI…n later buy a high end device with those money…it is u who will b in profits…for instance…if u paying an EMI of 5000 for 5 months with a processing fee of rs. 1000…y dont u save those 5000rs each month with urself instead of paying an EMI…n after 5 months u can buy ur product..! U will gain a profit of rs.1000 n even the cash discount recd. While purchasing the device! Also the price of the device will surely fall in 5 months! In shortu always remain in profits! I like this rule!

      • jagshish

        Then I have to wait for 5 months for the device whereas if I pay 1000 more I will have the device in my hand right now….rather than waiting I will pay 1000 more…

    • Shivaank

      You will still be able to opt for EMI schemes. The only difference is that, now, you won’t be mugged by these companies in the name of “interest free EMIs”. You’ll be able to opt for EMI’s with legitimate interest rates.