Why no 0% EMI scheme this festive season is good for YOU!

Harshala Chandokar, senior vice president, consumer relations, CIBIL, answered why the RBI clamping down on zero per cent EMI schemes will help consumers this festive season.

Here is the unedited chat transcript

haresh: Harshala mam, plz tell me about the pitfalls of EMI schemes. Does it benefit consumers?

Harshala C: EMI schemes do benefit consumers. It gives an opportunity to consumers buy consumer durables, two wheelers, cars, homes, fund for your child's education. What you must bear in mind is that the EMI has to be paid for the tenure of the loan. It is important for you to assess your finances, monthly expenses and then decide whether you can pay the EMI month on month basis.

vishal: I want to buy a 32 inch LED. Will be going through the EMI option. I have a credit score of 790 plus. How can this help me get a better deal?

Harshala C: While each bank will have its own credit scoring cut-off based on the credit sanctioning policies, it has been observed that most banks are lending to consumers with a credit score of 750 and above. With a score of 790 you may negotiate with the bank for a better rate of interest and it will also help you avail of a loan faster.

shirish: If at all I have to go for a home loan, what is the best credit score to have for getting better interest rates?

Harshala C: While each bank will have its own credit scoring cut-off based on the credit sanctioning policies, it has been observed that most banks are lending to consumers with a credit score of 750 and above.

waman: Will I get a good auto loan for a two-wheeler purchase this Diwali? I have 20 % paying from my pocket and rest as finance. How I can smartly make use of 0 % EMI schemes?

Harshala C: RBI has asked banks to offer uniform interest rates and processing fee on equated monthly instalment (EMI) credit card schemes for retail products, discouraging them from offering such products with zero percent interest. So banks will not offer 0 % EMI schemes.

mustafa: Can I still get 0% EMI schemes despite the RBI having banned them?

Harshala C: RBI has asked banks to offer uniform interest rates and processing fee on equated monthly instalment (EMI) credit card schemes for retail products, discouraging them from offering such products with zero percent interest. So you may not be able to avail of a 0% EMI scheme

bhanu: What can I do if my credit score is below 500 and still want a good deal on the iPad that I want to but this Dussehra?

Harshala C: It is advisable to improve your credit score before you apply for a loan. You may find it difficult to avail of a loan if your score is 500

kapadia: What are the losses I face when I opt for such EMI schemes? On the other hand, are there any benefits of such schemes?

Harshala C: The interest rate charged is "camouflaged" and passed on to customer as processing fee by banks offering the zero percent EMI schemes on credit card outstanding for purchasing retail products.

Here's a typical example of the 0 percent EMI scheme. So let's say, X gives Y a loan of Rs 10, where Y pays back Re 1 per month in 10 months. The impression created is that there is no interest rate charged. But if X is also charging a processing fee of Re 1? Then the actual money lent will be Rs 9. In other words, Re 1 processing fee actually works as an interest.

salim: Dear Harshalaji, I have heard from friends that these 0 % EMI schemes are nothing else but fraud. If my friend is right, could you plz enlighten me how do I get defrauded by such schemes?

Harshala C: The interest rate charged is "camouflaged" and passed on to customer as processing fee by banks offering the zero percent EMI schemes on credit card outstanding for purchasing retail products.

Harshala C: Here's a typical example of the 0 percent EMI scheme. So let's say, X gives Y a loan of Rs 10, where Y pays back Re 1 per month in 10 months. The impression created is that there is no interest rate charged. But if X is also charging a processing fee of Re 1? Then the actual money lent will be Rs 9. Inother words, Re 1 processing fee actually works as an interest

shaishav: How do I get a good credit score? How can I leverage it while negotiating home loan rates?

Harshala C: You can maintain a good CIBIL TransUnion Score by: Always pay your loan/ credit card dues on time• Maintain a healthy mix of credit• Apply for new credit in moderation; Monitor your co-signed, joint accounts monthly; Monitor the loan accounts for which you have stood as a 'guarantor'

Review your credit score and history frequently

rajat: Why do banks give loans to people who cannot afford to repay for their gadget/two-wheeler/car purchase? Aren't such loans creating India's own sub-prime crisis?

Harshala C: Banks do check the repayment capacity of an individual before they sanction a loan. They also check their CIBIL report and score to check
the payment history of that individual, whether there are any defaults in past and if the person is over leveraged.

sudaram: What is the overall impact on such easy EMI schemes on those who swipe their credit cards to avail the buying opportunity?

Harshala C: If you avail of a loan or any EMI scheme on your credit card and are not able to pay the EMI, this will be reported as a 'default'. This may hamper or delay the process of getting a loan sanctioned in future. It is always better to be prudent when taking a loan or swiping the credit card.

shinde: Now that the RBI has clamped down on 0 % EMI schemes, will I still get such schemes dressed in some other language Please share yor thoughts...

Harshala C: The RBI move is good news for customers. The RBI notification is aimed at creating awareness among the common consumers about the schemes floated by the companies and banks. Many people want to buy electronic items even when they don't have the financial capacity to buy. And by getting into these EMI offers they simply get into unmanageable amount of debt.

You may not be able to avail of such schemes now.

abhishek a: how does one check one's credit score?

Harshala C: You can access your CIBIL TransUnion Score and report on CIBIL's website in 3 easy steps: Step 1: Fill online form- Visit http://rediff.ly/1gsxk and duly fill in the online request form; Step 2: Payment – Make payment of Rs. 470 via Net banking / Debit / Credit / Cash Card; Step 3: Authentication – Answer 2 questions based on your credit history

If you are successfully authenticated you can download your credit report consisting your credit score and also receive it via e-mail. If you fail the authentication then you can upload scanned copy of your identity proof and address proof on CIBIL's website. The report will then get delivered to you via express delivery

anil: I want to buy a Duster this Diwali. I have Rs 3 lakh with me and want to get the rest as loan. How should I proceed to get the best deal on thsi car?

Harshala C: Dealers offer attractive discounts during festive season.

Approach a reputed dealer and negotiate for the best price and terms & conditions• Compare loan options: Research online to check the available car finance options and narrow down the ones that best suit your requirements• Check your credit report and score before applying for the loan

If you have a good credit score check with the finance companies what better terms and conditions can they offer you on the loan• Apply for the loan option only after reconfirming all the finance details best suitable to you. Make sure that you get the best value for your money.

rakesh ramani: Hi Harshala, is it advisable to buy electronics on EMI ??

Harshala C: It is better to do your homework before you avail of any loan for buying electronics. Dealers offer discounts if you pay cash. So check the discounts, rate of interest being offered by the finance companies, check your finances -- whether you will be able to pay the additional EMI every month. After taking into consideration all of the above you may decide whether you should take the loan.

kiran kumar: I have purchased few gadgets online earlier on 0% EMI. The scheme was offering same price and 0 processing fees for one time payment or for 3 EMI's. Is there any catch there?

Harshala C: If there was any processing fees for say a 6 EMI scheme then the processing fee is actually the interest that you would have paid. Since the price was also the same then doesn't seem any catch.