The conundrum called ‘zero’ interest Easy credit, as the name suggests, comes on a platter. And retailers are using it to the hilt to ramp up footfalls. But there may be a catch or two,

The conundrum called ‘zero’ interest

Easy credit, as the name suggests, comes on a platter. And retailers are using it to the hilt to ramp up footfalls. But there may be a catch or two,

The festive season is just over the head, and everyone wants to break free. While some have all the moolah, others find the availability of easy credit as the urge to splurge. This is especially true when you are walking a budget tightrope. Which is why it’s difficult to ignore the call of zero interest offers. The bait is all too tempting because it’s free! But as they say there are no free lunches. So, we tell you by how much this “free” offer will set you back. The fine print Earlier, the Reserve Bank of India (RBI) had come down hard on banks asking them to refrain from providing zero finance schemes, following which most complied. But NBFCs (non-banking finance companies) are still out of the ambit, where the offers are dime a dozen. The camouflage is most retailers roll out a special scheme where goods are priced lesser than the original figure, but once you go for this scheme, the benefit simply vanishes. Worse, what appears to be free is not really so, and you stand to pay a whopping interest rate on the same. This merits an illustration. Suppose you decide to buy an LCD for `42,000. On this, the retailer may ask you to pay a down payment of `10,000. The rest `32,000 can be paid through equated monthly instalments (EMIs). Now if you agree for 12 instalments, it means you will have to pay `2,670 every month. This amount perfectly fits into the zero interest claim. However, the trap is while making this calculation, you tend to lose sight of a processing fee. Now assuming that you pay such a fee of `1,500, the total amount at the end of the tenure works out to `43,540. Effectively, you are paying an interest rate of over 10%, which is far from the zero interest rate as promised! The other catch with the EMI option is you will have to buy the product at the original price. Adhil Shetty, CEO of bankbazaar.com, explains how it can translate into a double whammy for the consumer. “Most retailers offer products at a discounted rate during the festive season. But if you exercise the zero interest option, you will have to make the payment on the maximum retail price. This means you not only pay the extra, but also lose the discount,” added Shetty. Such offers abound even with credit cards. While making a big-ticket purchase if you think you cannot pay the whole amount by the end of the billing cycle, an EMI option comes to your rescue. But once again, the promise of the irresistible zero interest comes to the fore. Here too, there are strings attached. Take one more case where you buy a laptop for `30,000 using your credit card and agree to pay the sum in six months. Now, your monthly instalments turns out to be `5,000 which may seem quite affordable. However, even in this case, you may have to pay a processing fee of up to as much as `3,000. Now, if you add this to `30,000, it translates into an interest rate of 20% on a yearly basis. These cases make it amply clear that there is more to it than meets the eye when it comes to zero interest offers. So before making up your mind, get a fix on the total outgo. You also need to figure out if you are losing out on any discount by availing the EMI option. This will again bring down your total effective saving. Therefore, the EMI may give you some relief, but comes at a cost. Stay away from easy credit If you manage to give the zero financing bait a slip, there are others in the form of festive and consumer durable loans out there to lure you. These loans, generally offered by public sector banks such as Dena bank and Central bank and NBFCs such as Bajaj Finserv, are available at a slightly lower rate of interest than other easily available forms of credit like personal loans. It’s a no-brainer that borrowing for avoidable requirements is a debt quicksand. Liquidating investments to cash in on festive offers is a strict no-no too. After all, who wants to buy now and regret later? The choice is yours.