No-cost monthly payments are popular with consumers looking to make large purchases without the burden of upfront payments or interest charges. Are they really as beneficial as they seem?
What is a no-cost EMI?
It is a payment option where you can make purchases and pay in installments without additional interest.
Suppose you want to buy a TV worth Rs 100,000 and you opt for a no-cost monthly installment plan for 12 months. With no-cost monthly installments, let’s say the interest rate is 12 percent.
Breakdown of no-cost EMI
Product Price: Rs 1,00,000
No-cost EMI Term: 12 months
Interest of Rs 12,000
Total cost without no-cost EMI: Rs 1,12,000
How it works
In a no-cost EMI plan, you would ideally pay the same amount every month for the duration of the plan and no additional interest charges.
Monthly installment: Rs 1,00,000 ÷ 12 = Rs 8,333.33
So in 12 months you would pay:
Total Refund with No Cost EMI Option: Rs 8,333.33 × 12 = Rs 1,00,000
This means you are paying exactly Rs 1,00,000 for the TV, with no additional charges or interest.
You will pay the exact price of the TV over 12 months. However, it is important to note that while interest is not charged directly, other charges or adjustments may apply to the total cost calculation.
“No-cost EMI is a financing option that allows you to pay for a product in equated monthly installments (EMI) without paying additional interest. This payment scheme is designed to make purchases more affordable by spreading the cost over a period that typically ranges from 3 to 12 months and even 24 months for some products. Opting for no-cost EMI can be beneficial if you want to manage cash flow without paying extra. It is particularly attractive for high-value items such as electronics or home appliances,” said Adhil Shetty, CEO, Bankbazaar.
Things to consider when considering a no-cost EMI
Eligibility criteria: Requirements for no-cost EMI may include credit score thresholds or specific card types.
Product price comparison: Compare the EMI price with the regular cash price to ensure you don’t overpay.
Holding options: Consider the different holding periods available and choose one that fits your budget.
Prepayment penalties: Some no-cost monthly payment plans may impose penalties for prepayment. If you anticipate having the funds to pay the monthly payment early, check the terms to avoid unexpected charges.
Processing fees: Beware of up-front or hidden processing fees.
Credit Score Effect: Regular, on-time payments can have a positive impact on your credit score, while skipped payments can hurt it.
Terms and conditions: Please read all the terms and conditions carefully before accepting the EMI plan.
First published: August 27, 2024 | 11:27 am IS
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