No Cost EMIs

Ms. Isha is setting up her new house & is short of funds for buying a refrigerator! She came across an electronic store that recommended that she can get a No Cost EMI!

  But is it the right choice for her?

If you’re hunting for a relatable solution, you’re at the right place!

To begin, No Cost EMIs may have tempted you at a car dealership or a big-box retailer since they allow you to make a large purchase and then pay it off over time without incurring any interest (i.e.,No Cost EMIs). Customers are usually attracted to make large purchases using these loans. However, No Cost EMIs can be expensive if you don’t pay back what you borrow within the agreed-upon time limit. So, if you’re thinking about getting a No Cost EMI, we’ve got you covered.

What are No Cost EMIs & how do they work?

A No Cost EMI, as the term suggests, requires repayment of only the principal balance & pay no interest over the borrowed money. Companies usually advertise this type of loan with an interest-free repayment period. Apart from this, you should also verify whether your loan includes any additional fees, such as a loan application fee, besides the No Cost EMIs. For Example, a furniture store named Bhool Bhulaiya may advertise No Cost EMIs for a period of 24 months.

Is No Cost EMI – really at no cost?

According to the RBI’s circular, no-cost EMIs are primarily a marketing tactic, and the interest expense is passed on to customers in some way.  E-commerce websites or the ones offering No Cost EMIs, discount the product to the exact amount of interest, bringing the amount payable to the product’s genuine price. And therefore, as there is no additional cost added to the product price it is known as No Cost EMI.

For instance, consider the case of a customer who wishes to buy a Laptop for ₹30,000. If the customer buys the laptop without availing of a No-Cost EMI, the laptop is available at a discount price of ₹25,500.

However, if they choose No Cost EMI, they must pay the entire amount, which is ₹30,000 but with the help of EMIs. That is, the interest amount is added to the price of the product.

Where can I find No Cost EMIs?

You can apply for a No Cost EMIs at several places, including an increasing number of retailers who now provide their own financing. Here are several areas where you might come across a no-cost EMI- 

• Retailers of furniture and gadgets
• Automobile dealers
• Medical Providers
• Online Platforms such as Amazon, Flipkart & etc.

Typically, these loans are advertised at the time of selling the product; nevertheless, if the dealer/retailer has not mentioned it, you can inquire about it on your own.

What are the advantages & disadvantages of No Cost EMIs?

The advantages of availing of the No-Cost EMIs are –

• Ability to purchase products without having to pay in advance
• Pay just in a few easy installments
• Flexibility to pay the same amount over time allows for better budgeting

While the No-Cost EMI is helpful and allows you to buy something you want but can’t afford on a limited budget, it has certain disadvantages. Let us look at it –

• For the EMI, you may be required to pay a non-refundable processing fee
• In case of late payment, interest payable will be subject to GST
• Unnecessary purchase of expensive products you don’t require

Is No Cost EMI bad for your credit score?

The borrower, like any other loan, must pay the No-Cost EMI on time. If you don’t pay back the money you borrowed on time, your credit score and creditworthiness may suffer. You must not opt to buy things on No-Cost EMIs unless you are confident in your capacity to repay your loan.

Conclusion

To summarize, if you are sure that you need the product you plan to purchase through No Cost EMI and that you will be able to pay EMI every month for the specified duration. Then, this can be a convenient method for you.

However, if you are unsure about the purchase and are considering it on the spur of the moment, it makes no sense to spend more than you could have in the first place!