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

    Uploaded by

    Harshil Mehta
    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.

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

    Uploaded by

    Harshil Mehta
    51 views7 pages
    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.

    Original Title

    Zero EMI

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    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.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    51 views7 pages

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

    Uploaded by

    Harshil Mehta
    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.

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    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
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    You are on page 1of 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.

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