Pause Your Shopping: Is No-Cost EMI Really a Free Ride? Read This Before You Swipe

By breaking down the cost of a purchase into smaller, fixed monthly payments, consumers can better manage their budgets. One such way is to avail of no-cost EMI, which allows individuals to plan their expenses more effectively, as they know exactly how much they need to pay each month.

No-cost EMI enables consumers to upgrade to higher-end or more advanced products without putting a strain on their finances. By spreading the cost over time, individuals can access products with better features or specifications that may have otherwise been out of their budget.

Also Read: No More Hidden Loan Charges For Retail Borrowers As RBI Mandates ‘Key Facts Statement’

While no-cost EMI schemes offer various benefits, consumers should exercise caution and consider certain factors before opting for them.

Despite being labeled as “no-cost,” consumers should carefully review the terms and conditions of the EMI scheme. Sometimes, there might be hidden costs, such as processing fees or administrative charges, which could increase the overall cost of the purchase.

Definition of No-Cost EMI:

No-cost EMI, also known as zero-cost EMI, allows consumers to purchase goods or services without paying any interest on the loan. Essentially, the interest cost is absorbed by the seller or the bank offering the EMI scheme. This means that the consumer pays only the product’s actual price in installments, spread over a certain period, without any ‘additional interest’ charges.

Availability and Eligibility

No-cost EMI schemes are commonly offered by banks, financial institutions, and sometimes directly by merchants, particularly in India. These schemes are typically available for purchasing high-value items such as electronics, mobiles, appliances, furniture, and even travel packages. Eligibility criteria may vary depending on the lender and the product being purchased.

Understanding the Mechanism

While it’s called “no-cost,” it’s important to understand the underlying mechanism. Merchants or banks offering no-cost EMI usually incorporate the interest amount into the product’s selling price. For instance, if a product’s price is Rs 15,000, and the consumer opts for a 6-month no-cost EMI, the seller might offer it at Rs 15,900, effectively spreading the cost over six months without any additional interest.

Payment Structure and Tenure

No-cost EMI plans come with predefined payment structures and tenures. Consumers can choose the repayment tenure based on their convenience and financial capabilities. Common tenures range from 3 to 24 months, depending on the product and the seller/bank’s terms.

Example: Let’s say you’re purchasing a smartphone priced at Rs 20,000. The merchant offers a 12-month no-cost EMI option. Instead of paying Rs 20,000 upfront, you’ll pay Rs 1,667 each month for 12 months, totaling Rs 20,000. In this scenario, you’re not paying any interest on the loan. However, it’s essential to compare the product’s price under the no-cost EMI scheme with its actual market price to ensure that you’re not overpaying for the convenience of installment payments.

No-cost EMI: Things to check

• Not truly “free”: While no-cost EMI sounds like you pay zero interest, the interest cost might be hidden. The seller may offer a lower upfront price instead of a discount if you choose EMI, basically baking the interest into the product price.
• Processing fees: Watch out for additional fees like processing charges that can be added on top of the EMI amount. Not all no-cost EMI options include these, but be sure to check the fine print before you commit.
• Credit score impact: Using no-cost EMI involves taking on debt, which can affect your credit score. Make sure you can comfortably manage the EMI payments to avoid late fees and a negative impact on your creditworthiness. Remember, it’s a loan.
• Product pricing: Merchants offering no-cost EMI often adjust the product’s selling price to incorporate the interest amount. Consumers need to compare the product’s price under the EMI scheme with its actual market price to ensure they’re not overpaying for the convenience of installment payments.
• Cancellation and prepayment charges: Consumers should be aware of any penalties associated with canceling the EMI or making prepayments. Some lenders impose charges for early repayment, which could negate the benefits of paying off the loan ahead of schedule.
• Vendor reliability: It’s crucial to transact with reputable merchants or banks to avoid potential fraud or disputes. Researching the vendor’s reputation, customer reviews and after-sales service can help ensure a smooth and satisfactory purchasing experience.
• Limited choices: No-cost EMI options may not be available for all products or at all retailers. They are often offered on specific items or during promotional periods.