ZERO EMI with ZERO interest – how is it possible?

Do you know that there is no cost EMI offered by the largest e-commerce websites of India, Viz Amazon, and Flipkart? Yes, no-cost means that there is zero interest, zero down payment, and zero processing fee needed to process the EMI. Wow! That looks so lucrative but how do you think is this possible? If you remember, RBI had notified on 17th September 2013 that no financial institutes can offer ZERO percent interest loans. So, how do you think e-commerce websites manage to provide no-cost EMI with absolutely free interest.

So, before digging deeper into understanding how this NO COST EMI works for e-commerce websites, let us first understand the e-commerce business model.

So, there are three main components in an e-commerce website, which are:

1. E-Commerce platform like Amazon or Flipkart where buyers and seller meet.
2.     The buyers (like you and me).
3.     The sellers (companies who put up their products on these websites to sell them).

So, when you choose a product on any of these e-commerce websites, and you proceed to pay then, you see the product value, and right next to it you see the option of ‘NO COST EMI available.’ Now, let us understand how this works with an example. Suppose you choose the product worth Rs. 10,000 online and you choose to pay on EMI basis split in three months. Now, say that soon after feeding in your card details you are given an upfront discount of 538 Rs. This makes your final payment amount to be Rs 9462. This is the amount that banks charge on providing a loan facility to you. Hence, now you know that the bank charges a total fee of Rs. 9462+Rs. 538 = Rs. 10,000.

So this is how you manage to pay Rs. 10,000 as EMI spilt over three months which means you pay Rs. 3,333 per month. And, you end up availing ZERO COST EMI facility, but the cost is actually borne by the seller or the retailer.

Another thing that you must have noticed is that this EMI is for a very short period of only up to 3 months or till up to 6 months at the max. You must have guessed by now, why is it so? The answer is simple, the longer the tenure of the loan, the more interest gets added to it, which is either borne by the retailer or the buyer. So, minimizing the EMI limit to 3 to 6 months eases out the payment pressure on both the retailers, the buyers and as well as on the banks who are abiding by the RBI guideline of providing loans/EMIs on interest. So, BINGO! It is a happy ending for all!.

So the moral of the story is that no EMI comes for free. The interest or the processing fee is charged by you only. So, be careful when jumping on buying anything impulsively.