Zero cost EMI: How do finance companies afford this payment option?
1. Product Selection - The consumer selects a product or service they wish to purchase through Zero EMI. This could be anything from a smartphone to a home appliance or even a vacation package.
2. Loan Approval - The consumer's eligibility for Zero EMI is assessed by the lending institution. This involves checking the individual's credit history, income, and other relevant factors.
Once approved, the lender determines the maximum loan amount and tenure for which Zero EMI can be availed. 3. Principal Amount - The total cost of the product or service is divided by the chosen tenure.
This results in the principal amount, which is the sum the consumer will be required to pay back over the specified period. 4. Monthly Instalments - The principal amount is then divided by the number of months in the chosen tenure.
This monthly instalment remains constant throughout the repayment period, making it easier for consumers to budget and plan their finances. 5. Interest-Free - The defining feature of Zero EMI is that it does not include any interest charges.
This is a significant advantage over traditional EMI schemes, where interest payments can significantly increase the overall cost of the purchase. Let’s understand with the help of an example. You are looking for an air conditioner worth ₹40,000 on Flipkart and as you move ahead to place the order, you are offered an option to pay that amount spread across 6 months.
6 EMIs of ₹6,668. No interest charges or processing fees. The next thought you have is - ‘obviously there is some catch here’.
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