I am going to get my first Credit Card and I dont want to get slapped by Hidden charges and “fine print charges”.Please anyone from finonja community enlighten me..
A lot of people seem confused about how no-cost EMI’s work. So here is an example of how it works and a trick that I use to maximize my savings ( No I don’t foreclose the EMI, it’s very risky )
Lets say you want to buy a laptop that costs Rs.1,10,000/-. Assume there is a card discount of 10,000 on full payment and EMI payment both. Your final price to pay will become Rs.1,00,000/-. You decide to pay by EMI.
Normal EMI Calculations:
Amount - 1,00,000
Interest - 16% per annum ( for most cards )
Tenure - 12 Months
Processing Fee - 199 + GST = Rs.235 ( for most cards )
Outstanding Amount | Principle | Interest | GST | Installment |
---|---|---|---|---|
1,00,000 | 7739 | 1333 | 239.94 | 9302.94 |
92,260 | 7842 | 1230 | 221.4 | 9290.4 |
84,417 | 7947 | 1125 | 202.5 | 9275.5 |
and so on.
Total extra amount paid = Interest + GST + Processing = 8877 + 1598 + 235 = 10710
So, a normal EMI would cost you Rs.1,10,710 after the last installment.
Now lets understand the same for No-Cost EMI.
Amount - 1,00,000
Interest - 16% per annum ( for most cards )
Tenure - 12 Months
Processing Fee - 199 + GST = Rs.235 ( for most cards )
Interest Amount as Discount = Rs.8,153. Try to understand this, you are given a discount on the total amount, such that you get a amount which when charged 16% interest will give the bank Rs.1,00,000. Here the discount is of 8153, so basically you are getting a normal EMI of amount 91,847. You card will deduct 91,847 from your limit and charge you 16% interest on this amount so that at the end, you pay a total of 1,00,000. Hence the name no-cost EMI. You don’t have to pay anything extra, at least till Nirmala Tai enters the chat.
Outstanding Amount | Principle | Interest | GST | Installment |
---|---|---|---|---|
91,847 | 7108.7 | 1224.4 | 219.3 | 8552.7 |
and so on. Similar to normal EMI calculations.
Total extra amount paid = GST + Processing = 1467 + 235 = 1702
So, a no-cost EMI would cost you Rs.1,01,702 after the last installment. Basically, a loan at 1.7% simple interest or 3.15% per annum.
I hope this post helps.
Edit - I’ve added in the comments how I maximize my returns using no-cost EMI. Constructive Criticism is welcome.