Where aren't all deals at 0% interest rate this Diwali?

"Buy your appliances today at 0% EMI, 0 processing fee," shout electronic appliances advertisements. Enticed by these ads Sharayu Panse, a graphic designer, went looking for laptops. "At the store I was surprised to hear that the offer was actually what it promised."

Well, she was plain lucky to have liked the laptop model which the manufacturer wanted to catch eyeballs. When we went asking for laptops from the same manufacturer at that very store but in the V-series instead of the B-series that Panse bought, we were disappointed to hear that the 0% interest scheme wasn't available on the model. "You would have to bear 7% interest if you take finance from Bajaj Finance, while 13% if you take a 3-6 month EMI on credit card," the salesperson clarified. After much arguing we realised that the issue wasn't with the offering from the finance company or the dealer. But the manufacturer was the ultimate authority on what deal you bag.

Clarifying on why only handful of products are available at 0% interest, Devang Mody, president consumer business, Bajaj Finance said, "Select product variants can have deal of 0% interest and 0 processing fee to customer, if the manufacturer is bearing the processing fee expenses since Bajaj Finance ends up incurring these expenses on all loans." 

It would do us good to understand the process of offering the 0% interest rate loans by non-banking finance companies (NBFCs) such as Bajaj Finserv, Tata Capital, Shriram Finance and the likes. "The manufacturer bears the interest while the finance company underwrites the customer risk (ability to repay loans and chances of default)," Mody said.

When Indian households are walking on the tight budget rope manufacturers are happy to facilitate low or no interest deals by pocketing the expense in lure of high sales. When questioned whether manufacturers were bearing the cost of the interest under select offers, Shantanu Dasgupta, vice-president-corporate affairs and strategy, Whirlpool of India, concurred. As a result, he said, a buyer would be able to bag a 0% interest deal on select models and not on the entire range. "This (Diwali) is a period when brands run consumer promotions in the form of free offerings on purchase of their products," Dasgupta said.

So only if a particular manufacturer wants to promote one product or model over another, would he agree to bear the burden of interest and/or processing fee. For products with superior features – which needs no push – you would have to cough up the interest, which could be as high as that on a personal loan (13-18%).

Does this mean you should forget the product features in the din of offers and Diwali deals? The answer is no. But when credit card issuers are charging a higher interest rate should you opt for consumer finance companies?

Well, there are other considerations to keep an eye on, few being:

Loss of cash discounts

Processing fee (As high as Rs 1,248 from financiers)

Service tax applicable on conversion to EMI

Upfront advance EMIs (which increase the interest burden)

Cost of default

At the retail chains we found that buyers had to forgo the cash discounts on offer if they opted for credit card payments. But customers opting for NBFC loans were able to get cash discount from the dealer. "This is because the dealer is not bearing the interest cost he is agnostic to financing proposal," said Mody.

The interest rate would also depend on the period within which you repay. So, a three-month EMI (0-12%) would be cheaper than a 12 month EMI (15-18%). With high-end television sets costing as much as a car, there are offers of longer term 18-24 month EMIs too.

But, if the dealer is asking for advance payments, say for instance pay three EMI upfront, you interest cost shoots up. This is because you are paying the money upfront from your pockets, but still bearing the burden of an interest. So, the loan amount to be considered should ideally be (actual cost – down payment), while the financier is calculating interest on the actual cost.

When you default on a loan, banks issuing credit cards would slap late payment fee and interest charge for the cycle, while NBFCs would ask for check bounce charge in the range of Rs 300-350. Another difference is, "When you get a card payment converted to a loan, you would have to pay service tax, which isn't applicable on loans from NBFCs," said Harsh Roongta, founder and CEO of ApnaPaisa.com. After weighing these options one should also consider whether they actually need to pay for appliances, whose value is going to reduce using a loan?

Roongta said, "Unless you badly need something and need it now, it never makes sense to take a loan for a depreciating asset. Remember there is no such thing like a 0% loan."