Nothing called 'zero interest'

Buyers in festival season are often attracted by ‘zero interest’ schemes. Consumer durable sellers, especially, the expensive kinds like televisions, fridges and even high-end phones aggressively promote these schemes. The tie-ups are with banks or non-banking finance companies. But as they say, there are no free lunches.

These schemes, typically, work in this manner. You pay for the product in six or nine or 12 equal instalments. On the day of purchasing, you have to pay three or four instalments as advance and the rest over time. The catch: There is a one-time administrative and processing fee.

Do this simple test to calculate the extra payout: Ask the dealer for the cash discount you will get. Most likely, it will be around 5 per cent. So for a product of Rs 48,000, it will translate into savings of Rs 2,400. Two, the processing fees say, Rs 1,000. Now for a 12-month loan, if three instalments are being paid in advance, the actual loan is Rs 36,000 for only nine months.

Your loss: Rs 3,400 (processing fee plus cash discount loss). The rate of interest 12.6 per cent.