EMIs are an essential factor to consider when opting for any type of loan or purchasing a product on instalments, especially during the festive season, when brands are expected to provide various discounts and offers. Accurately estimating your EMIs is key to understanding how repayment will affect your finances in the long run.
Whether you’re taking a personal loan or buying electronics, furniture, or appliances, it’s important to evaluate the EMI terms. Lenders and companies generally offer two types of EMI options: regular EMIs that include interest payments, and no-cost EMIs that usually exclude interest, though the actual cost may be adjusted in other ways.
With the upcoming festive season offers and sales, here’s a detailed look at what no-cost EMI really means.
What is no-cost EMI?
A no-cost EMI is a payment plan that allows you to split the cost of a product or service into manageable monthly payments without paying any interest. Essentially, you pay only the total price of the product, with no additional charges. Hence, no-cost EMI may seem like a favourable financing choice. However, there are certain crucial factors to look at before opting for the no-cost EMI option.
Hidden charges
“No-cost EMIs are attractive because they reduce the immediate burden, but you should evaluate whether you really need the purchase. Many people forget that some no-cost EMIs include hidden charges such as GST on the waived interest, processing fees, or higher product pricing. Over time, these small costs add up,” according to LC Mittal, Director, Motia Builders Group.
Risk of overspending
No-cost EMI plans may lead to overspending driven by unexpected purchases, giving a false sense of lower payments.
“When it comes to personal finance, spending and buying need clarity. No-cost EMI plans lead to the purchase of plans that were not intended to be used. As this purchase comes as a surprise, the impression is that payment will be a light burden. In the longer horizon, this damages the inflow of cash and also easily accessible savings,” according to Aman Gupta, Director, RPS Group.
No-cost EMIs involve sellers absorbing interest costs, offering interest-free payment plans rather than direct discounts.
“There is hardly any such thing as free credit. Terms like ‘EMI with zero interest’ are marketed with the seller absorbing the interest cost as part of the promotional strategy. Retailers may offer promotional interest-free monthly payment plans instead of giving a direct discount,” Gupta said.
“In the longer horizon, this damages the inflow of cash and also savings, which are easily accessible. Renewable and sustainable resource use is also less than estimated,” he added.
Factors to consider before choosing no-cost EMI
1. Budget assessment
It is essential to consider your budget and finances before opting for any EMI option. Choose an EMI option that fits your budget without hampering your lifestyle.
2. Interest-free period
You will have to pay interest after the interest-free period. Therefore, you will have to check the interest-free period of the EMI option. This will impact the overall cost of the loan.
3. Terms and conditions
When you opt for a no-cost EMI option, check the terms and conditions to estimate the total cost of the loan.
In conclusion, no-cost EMIs are not truly about eliminating costs but about shifting them. It’s important to analyse hidden charges, both upfront payment and on EMIs, carefully assessing any imbalance before making purchases.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or experts, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
