TLDR;
The video discusses the reality behind "no cost EMIs," revealing hidden charges like GST on interest and processing fees that diminish the actual discount received. It emphasizes the psychological impact of EMIs, which can lead to overspending, and advises viewers to always compare EMI options with upfront payments, factoring in all costs and potential foreclosure charges. The key takeaway is to understand the true cost of EMI offers before committing to them.
- No cost EMIs aren't really no cost due to hidden charges.
- EMIs can encourage overspending by making purchases seem more affordable.
- Always compare the total cost of EMI with upfront payment options.
Introduction [0:00]
The video starts by highlighting the popularity of EMI options during sales events, noting that a significant portion of purchases are made using no-cost EMIs, particularly for electronic gadgets. The speaker shares a personal anecdote about a friend who bought a laptop on EMI, which prompts an investigation into the true cost and benefits of these offers.
Types of Payment [1:50]
The speaker explains that most platforms offer three payment options: upfront payment, regular EMI with interest, and no cost EMI. Traditional financial advice suggests paying upfront for consumer durables, and regular EMIs are generally unfavorable due to high-interest rates. The video then questions whether no cost EMIs are genuinely free.
How Zero Cost EMI works? [2:35]
The speaker uses his friend Rohan's experience to illustrate how no cost EMIs work. Despite an initial discount, Rohan discovered an interest component in his credit card statement. The bank explained that the total amount is split into principal and interest, with the bank using standard interest rates to calculate the split.
Comparison between EMI vs Upfront Payment [5:00]
The speaker shares a personal test case involving a smartphone purchase on Amazon. Despite a 5,000 rupee discount with a 12-month no cost EMI, calculating the GST on interest and processing fees reduced the effective discount to 3,500 rupees. The upfront payment option offered a 4,750 rupee discount, making it the better choice. The speaker notes that these calculations are not shown upfront, requiring consumers to figure them out independently.
Risks of EMI payments [6:06]
The speaker warns that EMIs can psychologically make people comfortable buying things they can't afford, leading to multiple EMIs and significant monthly payments. The longer the EMI tenure, the higher the chances of default, which results in high-interest rates, damaged credit scores, and harsh penalties.
When does EMI make sense? [6:44]
The speaker clarifies that EMIs are not always bad. They can be useful if you want to keep your money liquid for emergencies or if the EMI deal genuinely saves you money after accounting for all costs.
Conclusion [7:02]
The speaker advises viewers to always compare EMI options with upfront payments, factoring in GST, processing fees, and EMI tenure. Upfront payments are often better. Many EMI options have foreclosure charges, and some banks may take back the discount if the loan is closed early. The speaker concludes by emphasizing that while debt is easily accessible and attractively packaged, it is still debt, and understanding the terms is crucial.