Scribd
Upload
98 views7 pages

You Can See No-Cost EMI Options For 3-Month and 6 Month EMI. For Longer Tenure Repayment

The document discusses no-cost EMI schemes. It provides examples showing how the total cost of a product remains the same under different tenures of no-cost EMI plans, with the interest charged being borne by the seller in the form of an upfront discount. While the EMI amount appears zero to the customer, the bank still charges interest on the loan amount. The true cost includes GST charged on the interest portion of the EMI. Therefore, no-cost EMI schemes are not really zero-cost for the customer due to this additional GST amount.

Uploaded by

Harshil Mehta
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
98 views7 pages

You Can See No-Cost EMI Options For 3-Month and 6 Month EMI. For Longer Tenure Repayment

The document discusses no-cost EMI schemes. It provides examples showing how the total cost of a product remains the same under different tenures of no-cost EMI plans, with the interest charged being borne by the seller in the form of an upfront discount. While the EMI amount appears zero to the customer, the bank still charges interest on the loan amount. The true cost includes GST charged on the interest portion of the EMI. Therefore, no-cost EMI schemes are not really zero-cost for the customer due to this additional GST amount.

Uploaded by

Harshil Mehta
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
You are on page 1/ 7

Suppose price of a product ₹ 101,999.00 ₹ 101,999.

00

Annual Interest Rate 15% 15%


Years 15 0.25
Payments per year 12 12

EMI ₹ -1,428 ₹ -34,853

do not match

You can see No-cost EMI options for 3-month and 6 month EMI.  For longer tenure repayment,
 the no-cost EMI option is not available. We will see later why that’s the case.

Assume rate of interest 15%


For 3 months case, you pay EMI 34000
Total amount 102000

For 6 months case, you pay EMI 17000


Total amount 102000 * Diff of 1 rs is negligible for rounding

But, banks can’t offer any loan without interest.


Let's amount Y, that would result in EMI of Rs 17,000 per month for 6 months at an interest rate of 15% p.a.

Amount which would result in EMI of 17000 for 6 months


₹ 97,682.17

Therefore discount ₹ 4,316.83


WHICH IS BOURNE BY SELLER

Similarly for 3 months ₹ 99,502.15


Therefore discount ₹ 2,496.85
WHICH IS BOURNE BY SELLER

Suppose it also offers 9 months ZERO percent emi, cost goes up


For 9 months ₹ 95,906.58
discount ₹ -6,092.42

Is the No cost EMI scheme really No-cost?


GST is charged on the interest
portion of the EMI.

Cost of an item ₹ 101,999.00


No cost EMI (months) 6
Interest Rate 15%
No cost EMI (months) ₹ 16,999.83
Net loan charged ₹ 97,682.17
Discount ₹ 4,317

Loan Schedule

O/S principle at
the beginning of
Month month EMI
1 ₹ 97,682 ₹ 17,000
2 ₹ 81,903 ₹ 17,000
3 ₹ 65,927 ₹ 17,000
4 ₹ 49,752 ₹ 17,000
5 ₹ 33,374 ₹ 17,000
6 ₹ 16,791 ₹ 17,000

Principal ₹ 97,682.17
Amount ₹ 98,459.38
Interest rate 1.59130300611

compound 1.5861%
₹ 101,999.00 ₹ 101,999.00 ₹ 101,999.00 ₹ 101,999.00

15% 15% 15% 15%


0.5 0.75 1 1.5
12 12 12 12

₹ -17,751 ₹ -12,053 ₹ -9,206 ₹ -6,363

do not match this matches this matches this matches

erest rate of 15% p.a.

₹ 11,333.33
Loan repaid O/S at the
Interest during month end of month GST
₹ 1,221 ₹ 15,779 ₹ 81,903 ₹ 220
₹ 1,024 ₹ 15,976 ₹ 65,927 ₹ 184
₹ 824 ₹ 16,176 ₹ 49,752 ₹ 148
₹ 622 ₹ 16,378 ₹ 33,374 ₹ 112
₹ 417 ₹ 16,583 ₹ 16,791 ₹ 75
₹ 210 ₹ 16,790 ₹ 1 ₹ 38

Total GST ₹ 777

Therefore, not really a Zero cost EMI for you.

n[(A/P)1/nt - 1]
₹ 101,999.00

15%
2
12

₹ -4,946

this matches
Total monthly
outflow
₹ 17,220
₹ 17,184
₹ 17,148
₹ 17,112
₹ 17,075
₹ 17,038
Amazon website with respect to No-cost EMI schemes.
Amazon
The bank will continue to charge interest on EMI as per existing rates. However, the interest to be charged by the bank will
be passed on to you as an upfront discount at the time of your purchase, effectively giving you the benefit of a No Cost
EMI. This discount excludes GST on interest amount that will be charged by your bank.

1. Let’s assume the item costs you Rs X.


2. You will have to pay an EMI of Rs X/6 per month (if you opt for 6 month No cost EMI scheme)
3. The money that you would have paid as interest is offered to you as the upfront discount. Let’s assume that the
upfront discount is Rs D.
4. Your credit card will be charged Rs Y = Rs X- Rs D
5. If you work back the numbers, on a loan of Rs Y at a certain rate of interest (R% p.a.), EMI for 6 months will be Rs
X/6.
6. A few days, the bank will convert Y into EMI.
7. You will have to pay GST on the interest amount. Now, the GST paid is an extra cost to you.

You might also like