Interest free loans sound like the ultimate gift for a borrower. They were being offered on almost all consumer goods to entice customers to make that stretch purchase. Then the RBI stepped in and seemingly played the party pooper by asking banks to stop interest free loans on consumer goods. But the truth is there were no real 0% loans to offer in the first place! There are diverse forms of direct and indirect ‘extra’ payments that consumers have to make in such deals that served as invisible interest charges.

1) Processing fee is the most common form of charge levied and with no apparent logic for it. 2-3% processing fee is an effective interest charge which one has to pay at the very onset, which is different from paying it over a period via EMIs. Transaction Fee is another guise of charging extra.

2) Documentation fee is a euphemism often used to charge unsuspecting consumers. Documentation processes maybe lengthy and expensive in cases of long term loans (home loans, car loans), which have proper contracts signed between borrowers and banks. But they do not exist in card transactions, and are in any case part of the services that banks provide.

3) Card transaction charge. Many sellers charge extra for using a card for your transaction, even for Debit Cards. The RBI has strictly instructed banks to severe all business relationships with those who levy Debit Card transaction charges.

4) Limited or no price negotiation. One does not get to bargain on the price if you choose a interest free loan. Printed prices are MRPs and not the final price, and sellers may well be ready to sell at lower price. A loss in price paid is a de facto hidden charge that consumers have to pay.

5) Bank – Seller association. Banks that have tie ups with retailers or consumer goods manufacturers actually get a good bargain from the seller. Thus, the bank and the seller have already agreed on a much lower price and they both collectively charge the customer a higher price in the guise of interest free loans.

With the emergence of peer to peer lending, consumers no longer need to depend on the elusive interest free loan and fall prey to its hidden charges. This transparent form of lending ensures a fair and competitive rate for the borrower and the lender. Faircent, a pioneer in peer to peer lending has developed a platform where borrowers and lenders can interact online to get the best deals possible and make every percent count.