If you belive that merhcnats are just giving away so much money to banks for free than I have nothing to say. If banks do not give commison that means since interrest amount is kept by bank but interest discount given by seller so effectivly mechant are giving away free money to bank.
Not merchant But Brands.
Mechnats or brands same thing. If brand is one bearing the cost they'll take commsions. You see banks're getting free loans(I mean 90% od NCEMI loan won't exist if they're no cost.) In fact you yourself won't take loan if it weren't NCEMI.
If commision is not involved why would any one work in such ecosystem ?
Instant Discount
Great post. Few follow up questions, please.If you are a credit card user, there is a high probability that you have made purchases using the EMI (Equated Monthly Installment) option. There are a few ways to avail of EMI options:
[Article Link: https://www.technofino.in/no-cost-emi-explained-is-no-cost-emi-actually-free/]
When we make a purchase at EMI or convert our purchases to EMI through the bank, the bank charges us interest on the principal amount. It is a short-term personal loan. However, the bank does not report these separately to the credit bureaus.
- Purchase directly from the merchant at EMI.
- Pay the full amount initially and then convert the charge into EMI by contacting your card issuer.
- Opt for No Cost EMI.
In the case of No Cost EMI, as the name suggests, it implies EMI without any interest. But is it truly interest-free? Let's explore the charges associated with No Cost EMI to find out.
So, when you decide to make a purchase using the No Cost EMI option, let's consider buying a Samsung Galaxy S23 Ultra 5G with a cost of Rs. 1,24,999 on Amazon. You can choose to use a HDFC Bank credit card for the transaction and you will be presented with various tenure options to select from.
As you go through the options, you will notice that there is a total interest amount mentioned along with an equivalent discount for each tenure.
In reality, banks do not offer interest-free EMIs. Instead, it is the merchant who provides an upfront discount equivalent to the interest amount that the bank would charge if you were to opt for the No Cost EMI. Essentially, the bank still applies their interest as per their policy, but you receive an immediate discount of the same amount from the merchant.
In this scenario, if you choose the 24-month No Cost EMI option, you will be charged a total of Rs. 1,06,372. You will receive an upfront discount of Rs. 18,627 from the merchant (Amazon in this case), which offsets the future interest charges.
Now, let's take a look at the charges associated with No Cost EMI:
It is important to be aware of these charges before opting for the No Cost EMI option.
- Processing Fees: Typically, banks charge a flat processing fee if you choose the No Cost EMI option. This fee can range from Rs. 99 to Rs. 300.
- GST on Interest: Although customers receive the interest amount as an upfront discount, banks still levy GST (Goods and Services Tax) on the interest component of the credit card EMI. Therefore, for each EMI, you will have to pay 18% GST on the interest amount.
- Foreclosure Charges: If you decide to cancel the EMI at any time, banks usually impose foreclosure charges. These charges can range from 2% to 5% of the remaining EMI amount.
Many people often misunderstand the concept of "No Cost EMI" and mistakenly believe that there will be no interest charged by the bank if they choose this option. This misconception can lead to feelings of being cheated once they discover the reality behind No Cost EMI. It is essential for individuals to understand all the associated fees and how No Cost EMI works before utilizing it.
Here's a helpful tip for you: Consider selecting the maximum available tenure when opting for a No Cost EMI. By doing so, you can receive the maximum interest discount. After the EMI is posted on your credit card account, which typically takes 3 to 7 days, contact your card issuer and cancel the EMI. The bank will ask you to pay the remaining amount. Even after paying foreclosure charges, significant savings can be achieved.
Let's refer back to the example we discussed earlier with the Samsung Galaxy S23 Ultra 5G. If you choose the 24-month EMI tenure, you will receive an upfront discount of Rs. 18,627, resulting in a charge of Rs. 1,06,372. However, if you cancel your EMI a few days after the purchase, even after paying a 3% foreclosure fee (approximately Rs. 3,035, calculated as 3% of the remaining amount after deducting the upfront discount), you can save nearly Rs. 15,500 as an upfront discount.
However, it is crucial to perform your own calculations and consider the terms and conditions before employing such tactics.
It does not work this way:
a.) GST is not for seller to keep, so it is not going to happen that GST charged by bank will be returned back to seller.
b.) All financial charges attract GST@18%. Be it normal EMI or No Cost EMI or EMI for loan taken on card, GST will always be charged on interest component. Even Processing Fee or Late payment Fee attracts GST @18%.
c.) GST varies from product to product, so if you calculate with product purchased on GST less than 18% you will always get a deficit.
Note: I am not a GST expert, some one from the field can chime in to share more details or make corrections.
I am sharing three calculations (refer snippets)
1. from my actual purchase, here I got Instant discount and NC EMI discount
2. derived from [1], I only removed the Additional discount to reflect the actual use case discussed here
3. Used same as [2] but changed GST rate to 10% to emphasize on point [c] mentioned above
1st Question
Interest is the income of Bank. And bank pays Corporate Tax on that income. However GST on Interest (which bank is earning) is an Indirect tax.
www.technofino.in
So it's known loophole and people are taking benefit of it without any negative effects if used not very frequently??Here you go
No Cost EMI Explained: Is No Cost EMI Actually Free?
If you are a credit card user, there is a high probability that you have made purchases using the EMI (Equated Monthly Installment) option. There are a few ways to avail of EMI options: [Article Link: https://www.technofino.in/no-cost-emi-explained-is-no-cost-emi-actually-free/] Purchase...
I have heard that people who have abused it had their credit cards cancelled. Occasional use is fine, but if you do it frequently, you are bound to get noticed. So, use it judiciously.
That's the same concern I have.. if they are aware then how are they allowing this even occasionally? Because the discounts are almost 10-15% which is not less
www.capitalmind.in
www.capitalmind.in
Hey, I just ordered a product worth 49900 on Amazon on No Cost EMI with 3K instant discount and the product cost was 46900 after that and there was 2200 no-cost EMI discount. Can someone guide me on how to cancel EMI and take that discount. I've all amount with me and can pay instantly as well. Just wanted to avail the 2K discount
