Ban on 0% schemes not a dampener

The news that the Reserve Bank of India (RBI) has banned 0% interest rate schemes on consumer durables is being perceived as a dampener ahead of the festive season. But is that really the case? Actually, no. Far from taking away a benefit, RBI has acted in your interest.

Look deeper into the schemes and you would find that these are not as attractive as they sound. The money you save by not paying any interest actually gets hidden in the processing fee and other charges.

0% interest schemes
Apart from regular household consumer goods such as refrigerators, washing machines and televisions, recently the 0% scheme was seen being offered even on mobile phones.

In the advertisements, mobile manufacturers and banks advertise that there is no processing charge, but if you read the fine print of the scheme, you will find that banks have started charging a processing fee on select smartphone products and for select tenors. It varies from bank to bank and even store to store (see graphic).

"The charges get hidden in the form of processing charges, convenience fee or a variation of loan schemes," says Adhil Shetty, chief executive officer,

Clear benefits
A times, banks adjust benefits such as discounts or moratorium periods by reducing interest rates. While this makes the scheme attractive, the customer doesn't know that it is coming at another cost.

Discount schemes:"There have been instances where dealers state that if you buy a product like a mobile phone, it will cost you say Rs 28,000 if you pay upfront, while if you take a loan it will cost Rs 30,000," says Suresh Sadagopan, a Mumbai-based financial planner.

Repayment after moratorium: "If there is a person who wants a refrigerator and is short on cash, moratorium period is good for her as it is a convenience," adds Sadagopan.

When a bank decides to provide loan on products, it is an agreement between the bank and the dealer. It is very difficult to find what the actual deal is. And in these agreements, banks benefit by increase in the number of loans and dealers benefit by increase in the items on sale.

Our take
RBI is extending a helping hand to you, the customer, who should reciprocate by being vigilant. "Though RBI has put forth the points, it is the customer who has to be careful. You have to understand the different between cash downpayment and 0% interest scheme. Always ask a lot of questions before you buy and compare the schemes. Always do the math before buying anything," says Surya Bhatia, a Delhi-based financial planner.

So this festive season, don't get bought into attractive schemes, but buy what you really need and know how much you are paying for it.


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