Green miles to go and promises to keep
The world gathers for yet another pow-wow at the climate conference in Glasgow. What can we expect to gain ...
A coffee time chat between two colleagues leads to an interesting explainer on an emerging loan product.
Vina: Hi Tina, did you check out the ongoing festive sales online? I have shortlisted a few items to buy.
Tina: No big ticket purchases this year, Vina. Spent a lot last month. It’s time I tighten my purse strings.
Vina: Why don’t you try the no-cost EMI options offered by many sellers, including e-comm websites?
Tina: No, Vina. No-cost EMI is a misnomer.
Vina: Why do you say that? The EMI instalments include no interest or any other additional charges. Plus, you get to defer the payment on your purchases by 3 to 12 months. What more could you ask for?
Tina: That’s not entirely true. Many banks, NBFCs (Bajaj FinServ) and other financial institutions (such as ZestMoney) with whom e-commerce websites have lending tie-ups, charge a processing fee on such no-cost EMI options. Starting from ₹99, the processing fee can go up to 1 per cent of the order value. Besides, a few also levy additional charges on pre-closure of loans, which may apply even if you return the product or cancel purchase.
And like any other loan, the instalments in no-cost EMIs also include an interest component, which however is offered as an upfront discount, hence the term ‘no-cost’. This interest ranges from 12 to 15 per cent per annum.
Vina: Yeah, isn’t that good saving on the interest front? Imagine how many people could benefit.
Tina: There is another catch here. The no-cost EMIs are only available for existing customers (debit or credit card holders) of the bank with whom the e-commerce site has partnered. These customers must have an existing pre-approved credit or overdraft limit with the bank. Moreover, this option is available only on purchases over a certain limit, ₹5,000 in most cases. Besides, part payment is also not an option. You need to either make full payment or avail a no-cost EMI option in full. But the advantage is that one can avail the loan online and almost instantly, without visiting the branch and submitting numerous documents.
Vina: Oh, these are part of pre-approved loans? Clearly those who have already exhausted such limits with their bankers, or have low or no credit score cannot avail no-cost EMI options.
Tina: Right. However, there are new fintech players such as ZestMoney, that provide such no-cost EMI options online to even those with no cards, credit score or such pre-approved limits. One has to just register their Aadhaar-linked mobile number on the platform and complete basic KYC for onboarding. Post this, the website approves a certain credit limit based on your transaction history and the customer can avail the no- cost EMI option on its partnered websites. These come with varying terms and conditions.
Vina: But then again, I need to verify if such players have partnered with the store where I want to make a purchase, or if the product of my choice is entitled for such an option from the fintech players.
Tina: Right! Net-net while no-cost EMIs do sound exciting, remember that there is no free lunch, ever.