Wednesday, 8 February 2012

ZERO% Finance Scheme

Buy one Get One Free, Lucky draw, Scratch Card, Up to % discount, Free Travel Vouchers, Assured Gifts and what not… Consumer durable companies are leaving no stone unturned to attract customers.  Thanks to the economic slowdown and ongoing competition among the Retailers. Retailers are offering cash discounts, attractive schemes to temp the customers.
It is all about meeting the sales Target. You cannot afford to buy in full cash? We offer you easy installment scheme. Further it is Zero% interest scheme. Sounds interesting??? Stupid would be the one who would ignore such a wonderful scheme right? Why pay full cash when same product is available at Zero% installment scheme. The Retailer will assure you that the loan processing is matter of 30 minutes. 
Zero% interest schemes would drive anybody to go for better product. For example, if somebody wants to buy a LCD TV might end up buying a LED TV as the product is available in installment scheme for which there is not interest that is being charged.
Let us see how the Zero% Schemes work.  Retailers have tie up with NBFC (Non Banking financial companies) for funding the consumer durables.
As I mentioned Retailer is offering all sorts of discounts on the product. The moment you opt for Zero% finance scheme, all other offers associated to this product is void. Meaning you are not entitled for any other offers once you go for Zero% Finance scheme.

For example: LED TV – MRP – 72,000.
Offers for this TV: Cash Discount - 5000 + Scratch card Gift. (Maximum worth 500 Rs)
Suppose "A" and "B" decide to buy this LED TV.  "A" wants to buy it by making full cash payment and "B" wants to avail Zero% Finance Scheme.

This his how the break up would look for "A" and "B"

A- Full Cash
B-Zero% Scheme
Cost of TV
Cash Discount
Processing Charges

Total Paid

The take away is when you opt for Zero% finance scheme the cash discount is not applicable, you will have to buy the TV at the MRP price. In addition to this you will have to bear the cost of processing charges.
Effectively for a TV that is costing 68000, you end up paying 73000, which is 5000 rupees more.1000 Rs is paid upfront as processing fees. The remaining 72000 should be paid in 6 EMI of 12000 Rs.
Summary: You are paying 5000 Rs more for TV that costs 68000. Approximate Effective Rate of interest will be close to 20%. 
The so called “Zero% scheme” is coming at some price. Many a times these schemes cost you 15% to 20%.   
Does this mean there are no Genuine “Zero% finance schemes”? There are few schemes that are genuine.  The simplest way to verify this is, check if there is any discount if the Cash is paid in full. If the answer is No, you can go for this scheme.

Observation: Zero% finance scheme work cheaper than using you credit card for making the purchase.
Tip: Before you rush and buy, check the prices with nearby store. Also check out for the online prices. Often you get good deals by buying product online.
Do you agree Zero% schemes are tempting ? Share your experiences.


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