As the festive season approaches, brands gear up to attract shoppers with the best shopping offers. One commonly available offer during the festive season is no-cost EMI. Like with any other repayment option, there are some things you must know about no-cost EMIs before availing of them this festive season.
What is no-cost EMI?
No-cost EMI, or zero interest EMI, is a repayment scheme that lets you split a purchase’s cost into interest-free installments for tenures up to 12 months. This scheme is useful for high-value purchases where it may not always be possible to pay the entire price upfront. With it, you can save on additional interest while ticking things off your festive bucket list without upsetting your budget.
Let’s understand how no-cost EMIs work with an example. You plan to purchase a washing machine worth Rs 24,000 but don’t want to pay its entire cost upfront. A 12-month no-cost EMI offer will allow you to buy this washing machine at a monthly EMI of Rs 2,000, which is far more affordable compared to the upfront cost.
Is no-cost EMI really cost-free?
One of the most important features of a no-cost EMI scheme is that it does not charge interest on EMI installments. The interest, in this case, is not waived by the merchant but instead offered as a discount. The annualised interest rate is still charged by the lender and borne by the merchant. However, some other costs and conditions are involved in a no-cost EMI transaction.
Merchants may sometimes offer a discount if you make a lump-sum upfront payment on your purchase. If you avail of a no-cost EMI offer, you may have to forego such discounts. In some instances, while the merchant may waive off the interest as a discount, they may still charge a processing fee that is 2-3 per cent of the purchase value. A GST of 18 per cent will also apply to this transaction.
For instance, you want to buy a smartphone that costs Rs 20,000. The merchant selling this phone offers a 10 per cent discount on upfront payment, effectively lowering the price to Rs 18,000. However, by purchasing the smartphone on no-cost EMI, you will have to forego the 10 per cent discount and pay the actual cost of Rs 20,000 in EMIs, along with 18 per cent GST on the interest to the bank.
Should you opt for a no-cost EMI?
No-cost EMIs are a go-to option for festive shopping. So, how do you decide whether or not to opt for it? There are two things to consider in such a situation – the price of the product and your financial situation.
If you can afford to buy a product upfront without it denting your finances, go for it. You stand to gain further if the merchant offers an additional discount on upfront payments. Moreover, if you’re already in debt, having another loan may strain your finances.
On the other hand, if you cannot afford to make an upfront payment for the desired product, no-cost EMI would be a good option. Though you may have to forego a discount when choosing this option, this option will be far less stressful on your budget.
The excitement of the festive season can sometimes test our resolve to stick to a budget. While a no-cost EMI may help you do this, it is vital to exercise due diligence before opting for one. Ensure that you pay them on time, and read the scheme terms before availing of it.
