The Interest Component
The most apparent additional cost is interest. While some jewellers or financing partners offer 'no-cost EMI', this isn't always truly free. Often, the discount you might have received on a lump-sum payment is waived for EMI customers. In other cases,
the interest cost is subtly bundled into the price. For standard EMI plans, interest rates can significantly increase the total amount you pay over the tenure of the loan. These rates vary between banks and non-banking financial companies (NBFCs), so comparing them is crucial before committing.
Upfront Processing Fees
Most loans come with a one-time processing fee, and gold EMI schemes are no exception. This fee is charged by the bank or lender for handling your application and documentation. While it might seem like a small percentage of the total loan amount, it's an immediate out-of-pocket expense that adds to the overall cost of your jewellery. Some lenders might waive this fee during promotional periods, but it is a standard charge you should always ask about. This fee is non-refundable, even if you decide to pay off your loan early.
Inflated Making Charges
Making charges, or the cost of craftsmanship, are a significant part of any jewellery purchase. When buying on EMI, you might find that the room for negotiating these charges is limited or non-existent. The entire cost, including making charges, is converted into EMIs. Some jewellers might even have slightly higher standard making charges for EMI-based sales to compensate for the financing arrangement. Since these charges are a percentage of the gold value and can range from 9% to over 25%, they substantially inflate the principal amount on which your interest is calculated.
The Inescapable GST
Goods and Services Tax (GST) is applied to the entire value of the jewellery, which includes the price of gold plus the making charges. But the taxation doesn't stop there. GST is also levied on the interest component and the processing fees charged by the lender. This means you are paying a tax on the cost of borrowing money, further increasing the total cash outflow over the EMI tenure. It's a cost that's easy to overlook but adds up with every instalment.
Penalties and Pre-closure Charges
Life is unpredictable, and you might find yourself in a position to pay off your loan earlier than planned. However, many financing agreements include a pre-closure or foreclosure penalty. This is a fee charged for closing the loan before the agreed-upon tenure ends. Similarly, if you miss an EMI payment, you will be slapped with late payment fees and penalty interest, which can be quite high. These clauses are often hidden in the fine print, and it's essential to read the loan agreement carefully to understand your obligations and potential extra costs.
