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RBI Bans Zero Interest Loans on EMI to Credit Card Holders

The decision of RBI to provide Zero Interest to Credit Card Holders has raised mixed reactions. As per the zero percent EMI schemes on credit cards, the banks are levying hidden charges on to the customers in the form of processing fee. Also some other banks are charging expenses for sourcing the loan in the form of rate of interest charged on the product.

What is exactly the concept of zero interest rates?

When you buy some consumer items, majority of the products come with zero percent interest rates. There are banks ready to pay you Zero Interest rates. In this case the manufacturer of goods provides some interest to the banks (It is hidden) for providing these interest free loans to consumers. The consumer pays the full amount of the product where as the product is delivered to the bank at a discounted price. Also, the banks are not revealing the real interest rates, so it may happen that you may think you are paying 0% interest whereas you may end up paying a high interest rate on your purchase. There is clear cut dealing between the bank and the manufacturer. It is highly difficult for the customers to understand the deal between the manufacturer and bank. The bank encourages more and more people to avail loan quoting it to be zero percent where as the manufacturer benefits by getting enhanced sales.

But RBI feels that this process disfigures the understanding of actual price and rate of interest of the product.

However, this has two repercussions: firstly the sales of the items would go down and secondly people may prefer to purchase items by paying full price rather than availing the loan. But the good part is that the customers do not remain in dark as they are aware of the price. This will help them make better decisions regarding their purchases. RBI has put forth a splendid point, now it is the responsibility of the customers to respond back by being extra cautious while coming across such attractive offers.

The festive season has begun and do not get carried away by some exciting schemes, buy the items that you are really in need of and clearly understand what you are paying for it. 

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