No-Cost EMI: Good or bad option?


15 Nov 2019 | 3 min read

No-cost EMI has become a very popular payment option in cities in India, over a couple of years. Nowadays, many online and offline seller stores are offering Easy EMI options on consumer durable products like home appliances, mobile phones, laptops and a lot more. By purchasing products on EMIs, you can make the payment for your purchase over a long tenure, say three to six months, which will help you manage your monthly budget. 

ICICI Bank and Bajaj Finserv are offering instant no-cost EMIs for the purchase of products from leading brands.  Check out the deals.

What is no-cost EMI?

Today, E-commerce platforms and other shopping stores offer products on two types of EMIs: regular EMI and no-cost EMI. In the case of regular EMI, your financer pays the remaining amount after you make the down payment, and you repay the loan along with the agreed interest rate to the financer. But when you select no-cost EMI option, you pay nothing over the agreed cost of a product you buy. 

Buying a product on EMIs reduces the burden of paying a huge amount upfront. However, when you get a product on zero-cost EMI, you may forfeit the discount that the store would have offered to you if you have paid the purchase price upfront. While other retailers may add the interest cost to the price of products.

Suppose you get a mobile phone worth Rs. 30,000 with a discount of Rs. 729 from an e-commerce website on Rs. 10,000 EMI for three months. With the EMI option, you pay Rs. 729 as an interest to the website. It may seem you have got a discount of Rs. 729, but, in reality, Rs. 729 discount goes to pay the interest on the loan. You could have got a mobile for Rs. 29,271, if you have paid the purchase price upfront.   

How no-cost EMI/ zero-cost EMI works?

No-cost EMI involves three stakeholders – customer, retailer and financer. Usually, retailers have a tie-up with financers (banks and NBFCs) that offer no-cost EMI on credit cards. Hence, you need to have a credit card of the bank that is offering no-cost EMI on the product you are purchasing. However, if you use a Bajaj Finserv EMI card to buy a product, you need to pay a fee for the EMI card. Stores offer zero cost EMI only on select products, including products with a higher price and products they want to sell faster. In the case of no-cost EMI, usually applicable interest rate on EMIs is equivalent to the discount offered on a product and is often camouflaged in the form of processing fees. 

Is no-cost EMI the right option?

Multiple banks, including Axis Bank, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, State Bank of India, RBL Bank, Standard Chartered Bank, and Yes Bank offer no-cost EMI on e-commerce websites such as Amazon, Flipkart and Snapdeal. Sometimes, you may not have the cash upfront to buy a product, but you want to buy it. Usually, a discount is offered on electronic products such as mobile phones, laptops, refrigerators, televisions and washing machines. Generally, the discount on a product is not that higher as it seems, but rather it is a marketing gimmick and a strategy to sell out the old stock.  

No-cost EMI can be a good option if the product you want to buy has a genuine discount. It is advisable not to opt for a loan to buy a product you don’t need, due to the temptation of zero-cost EMI. Also, if you get a loan to buy a product, don’t default on your EMI. Defaulting on EMIs will damage your credit score, which will make it difficult for you to get a loan or credit card in the future.      

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