Should you avail of no-cost EMIs? Here’s what credit card users must know

No-cost equated monthly instalment (EMI) has become a preferred payment option for many, as it is a convenient way to make big-ticket purchases without shelling out the entire amount upfront. It’s a feature increasingly seen in online platforms and retail stores, but how does it work?

No-cost EMI options are frequently available for electronic gadgets, appliances, furniture, and other high-value items. The basic principle of EMI is to enable customers to buy expensive items by paying a small sum per month over a specified tenure. This typically involves some interest payable on the outstanding amount. However, the merchant generally absorbs this interest amount in the case of no-cost EMI. This option of fixed monthly payments is convenient for all customers looking to spend within a fixed budget.

In other words, with no-cost EMI, you only pay the product price, divided equally over a predetermined tenure. For example, if you buy an item worth Rs 1,200 and opt for a six-month no-cost EMI, you will pay Rs 200 every month, totalling Rs 1,200 over the six months.

However, it’s important to note that no-cost EMI is not necessarily “free of cost”. Adhil Shetty, CEO of BankBazaar.com, says, “You must have clarity about how the no-cost EMI option works before availing of it. When you opt for a no-cost EMI scheme on your credit card, you do not pay any down payment, processing fee, or interest. Though the bank/issuer will charge you interest, it may be offered as an upfront discount when you buy the product.”

Other discounts or cashback offers might be unavailable when opting for no-cost EMI. Hence, they can compensate for the cost of absorbing the interest. Shetty said, “First, you must try to skip the no-cost EMI option if you can pay the price of your desired product upfront without straining your budget. Merchants may offer additional discounts on upfront payments, allowing you to save on your purchase. So, if you opt for the no-cost EMI facility, you may have to forego the discount the merchant offers.”

The no-cost EMI option, though attractive, may be available on select products. Sometimes, the product’s price may be inflated to cover the cost of the interest or fee that is being waived. You must go through the terms and conditions of this option carefully to be aware of your liability regarding your purchase. Also ensure that you have a repayment plan in place to service the EMIs. Failure to do so could result in penalties.

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Should you opt for it? 

On the surface, no-cost EMIs appear attractive, making big-ticket purchases more affordable by breaking the cost into manageable monthly payments. This option can be highly beneficial for certain circumstances. For individuals with a steady income planning to make a significant but essential purchase, such as appliances, electronics, or furniture, opting for no-cost EMIs can be a smart way to avoid denting their savings, all while not having to pay any extra charges.

However, the scheme isn’t without its drawbacks. If you frequently purchase non-essential luxury items through no-cost EMIs, you might spend beyond your means. This could lead to potential debt. Plus, while there may not be any processing fees, lenders often recoup costs through higher product prices.

In conclusion, whether to avail of the option of no-cost EMIs largely depends on the individual’s financial health and rationality. A well-planned purchase using this scheme could prove to be beneficial. But, one should always scrutinise the terms and conditions to be fully aware of potential hidden costs and make the purchase decision wisely.