No-cost EMI: Is it really worth it? Evaluating the pros and cons

Interpreting the no-cost EMI scheme

No-cost EMI proves to be a favoured financing choice among shoppers as it enables them to acquire high-value items without incurring any interest charges. This approach effectively spreads the expense of substantial purchases, rendering them more budget-friendly.

Nonetheless, it’s vital to recognise that no-cost EMI isn’t entirely cost-free. The retailer or financial institution still profits from the arrangement, often by imposing a higher interest rate on the retailer than what they would offer a customer seeking a conventional loan. Furthermore, certain retailers and financial institutions might impose a processing fee for transactions involving no-cost EMI. However, not all products may offer the option of no-cost EMI, and the eligibility requirements can vary depending on the specific retailer and financial institution involved.

How does the “no-cost EMI” scheme work?

A no-cost EMI is a payment scheme that permits you to divide the cost of a product or service into manageable monthly installments without incurring any interest. In essence, you’re only covering the product’s total price, devoid of any extra charges.

The no-cost EMI scheme can be implemented in two different manners:

Discount equivalent to interest rate: In this scenario, the retailer provides a discount on the product that matches the interest rate typically associated with a regular EMI plan. Consequently, the customer pays the same total amount for the product, but they extend the payments over an extended period.

Product cost inclusive of interest amount: In this scenario, the retailer factors the interest amount into the upfront price of the product. As a result, the customer pays a higher initial price for the product, but they are exempt from any interest payments on their EMIs.

In general, utilising a no-cost EMI can prove a convenient method for financing significant acquisitions. Nevertheless, it’s crucial to thoroughly review and comprehend the associated terms and conditions before opting for this choice.

Is the no-cost EMI option worth your choice?

Although no-cost EMIs may initially appear appealing, it’s essential to carefully consider the advantages and disadvantages before committing to one. This is because this seemingly attractive purchase option may conceal potential drawbacks, such as concealed processing fees. There are also some drawbacks to take into account before choosing this option:

Concealed charges: Certain retailers or financial institutions might impose concealed fees on no-cost EMI transactions, like processing charges or penalties for prepayment. It’s crucial to meticulously review the terms and conditions before enrolling in a no-cost EMI plan to comprehend any applicable fees.

Elevated product prices: No-cost EMI plans are typically limited to products with substantial profit margins. Consequently, consumers might end up paying a higher overall price for the product, even though they are not incurring any interest charges.

Risk of overextending finances: No-cost EMI plans can tempt individuals to overspend, purchasing items beyond their long-term affordability. Prudent budgeting is essential before opting for a no-cost EMI to ensure that consumers can manage the EMIs.

Impact on credit score: Missing an EMI payment could have a detrimental effect on one’s credit score. This may make it challenging to qualify for loans and credit cards at more favourable interest rates in the future.

How to choose the best no-cost EMI plan?

If you have a clear and certain need for the product you intend to acquire using a no-cost EMI plan and are confident in your ability to make the monthly EMI payments for the entire duration, then no-cost EMI becomes an exceedingly convenient means to facilitate your purchase.

No-cost EMI affords you the opportunity to procure a product without the immediate burden of paying its full price upfront. This can prove particularly advantageous when you are operating under budget constraints or when you require a high-value item. The following are some recommendations for making prudent use of no-cost EMI plans:

Compare offers: Diverse lenders and retailers may present varying no-cost EMI options, so it’s advisable to compare these offers before making a selection.

Check eligibility: Assess the eligibility criteria as they can differ based on the specific retailer, financial institution, and the product you intend to purchase.

Budget appropriately: Ensure that you have the financial capacity to meet the EMIs comfortably before opting for a no-cost EMI plan. Calculate the total cost of the product across the EMI period to ensure it aligns with your budget.

Scrutinise terms and conditions: Thoroughly review the terms and conditions to gain a comprehensive understanding of any concealed fees or charges that may be applicable.

Timely EMI payments: Making your EMI payments promptly and in full is vital to steer clear of late payment fees and charges. Additionally, it helps safeguard your credit score from any negative impacts associated with missed payments.

Stay mindful of the cancellation timeframe: Many no-cost EMI plans come with a specific cancellation window. Should you cancel your plan after this timeframe elapses, you could potentially face a cancellation fee.

Anticipate potential processing charges: Be ready to cover a processing fee for the cancellation of a no-cost EMI plan, as some retailers or financial institutions might impose this charge.

Comprehend the refund procedure: When you cancel a no-cost EMI purchase, it’s essential to return the product to the retailer. Subsequently, the retailer will initiate the refund process, which may extend over several days or even weeks, depending on the retailer’s policies.

Prior to committing to a no-cost EMI plan, it’s vital to have a clear understanding of your financial limits. No-cost EMI arrangements can inadvertently encourage overspending, as the full impact of the purchase might not become apparent until you commence the monthly payments.

It’s equally important to bear in mind that no-cost EMI is not genuinely devoid of costs. The retailer or financial institution still generates revenue from the arrangement, often through a higher interest rate charged to the retailer, which may surpass what a traditional loan applicant would encounter. Additionally, certain retailers and financial institutions may impose a processing fee for no-cost EMI transactions.

Convenience should not be the sole criterion for your choice. Given the multitude of payment options available, it’s prudent to deliberate between the alternatives at hand, rather than succumbing to an option that may not be as advantageous as it initially appears.

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Updated: 25 Oct 2023, 11:21 AM IST