No cost EMIs - Merits & Demerits

We all love it when e-commerce platforms such as Amazon or Flipkart launch a sale. It's the perfect excuse for many of us to finally splurge on objects of desire that we had been curating on our wish lists for months.

The sellers realize this too. Besides the discounts on the products themselves, they also offer a plethora of convenient payment options so that you can take further advantage if you happen to be eligible for any of them.

Some examples of this include exchange offers, discounts specific to participating banks, and no-cost EMI. While the first two are self-explanatory and straightforward, there's a bit more to the latter than meets the eye. In this feature, we delve into the nitty-gritty of no-cost EMIs, including advantages and disadvantages that you ought to be aware of.

What is no cost EMI?

EMI, or Equated Monthly Installment, allows you to complete a purchase without having to pay the full payment at once. Instead, you can pay in smaller monthly installments that are calculated based on the tenure of your EMI; the lengthier the tenure, the higher the interest.

When should I opt for no-cost EMI?

Given that you'd even be considering paying by no cost EMI, it's apparent that the item you want to purchase is a pricey one. Therefore, It goes without saying that you should first affirm your decision to go ahead with the purchase only after assessing your financial situation. After all, there's no point in going ahead with an impulse buy using no-cost EMI and ending up paying more than what it would've cost to pay the whole amount upfront.

Only If you are certain that the item is something that you absolutely need, and you'll be capable of paying the monthly EMI on time during the entire course of the tenure, only then is no cost EMI a convenient mode of payment that you should consider.

Why it's not really ‘no cost'

If you're thinking that no-cost EMI implies getting to enjoy the best of both worlds, ie. not having to pay upfront and not having to pay interest, you'd be mistaken. This is because when you opt for no-cost EMI on a discounted product, you end up paying the original undiscounted price. And if the product isn't discounted, you will be paying interest.

Your favorite e-commerce sites offer no-cost EMIs with stipulated interest rates that are usually the equivalent of the discount being offered on the product. Depending on the seller and the financier of the loan, the interest rate can vary between 12 to 15 percent. Aside from this, the financier can also charge a processing fee, which is added to your total cost.

How no-cost EMI affects credit card users

Should you opt for no-cost EMI using a credit card, the amount payable gets deducted from your card's credit limit, which is then restored over the course of your tenure with each installment paid.

How no-cost EMI affects debit card users

If you're using a debit card, however, be aware that the whole amount is debited from your bank account and only credited back once the transaction is successfully converted to a loan after a few days. So you'll have to ensure your bank balance is enough to cover the full cost and also that you won't be in any temporary financial difficulty until the amount is credited back.

Merits of no-cost EMI

• You can purchase pricey items without needing to pay the entire amount in one go
• The amount can instead be paid over the next few months
• Over how many months you can stretch your installments depends on the length of your chosen tenure
• Not having to dish out a sizable chunk of money at one go and being able to pay a recurring installment instead helps you plan your monthly budget better

Demerits of no-cost EMI

• They are not supported by all financiers
• You end up paying more than you would have you paid the full amount upfront
• Some NBFCs only extend it to customers that have a credit score equal to or higher than a value specified by the offer
• In the event that you return the product and get a refund, you'll still lose the interest paid
• Not every product or brand is covered by no-cost EMI

When you absolutely need to purchase something that makes you want to opt for a no-cost EMI, you could also consider an instant loan instead. That way, you'd be able to purchase the item at the discounted rate itself. Also, as we've discussed above, a no-cost EMI via debit card requires you to have a bank balance equivalent or ideally, a bit more than the full price of the product. mPokket offers loans of up to Rs. 45,000 for students, instant loans for salaried of up to Rs. 45,000 and even salary advance loan, and it's transferred straight to your bank account after a fast, paperless approval process.