No-cost equated monthly instalments (EMIs) are popular among consumers looking to make big-ticket purchases without the burden of upfront payments or interest charges. But are they truly as advantageous as they seem?
What is a No-Cost EMI?
A no-cost EMI allows you to make a purchase and repay the amount in instalments without incurring additional interest charges.
For example, if you want to buy a TV worth Rs 1,00,000 and opt for a 12-month no-cost EMI plan, typically, without this option, an interest rate of 12% would apply.
Breakdown of a No-Cost EMI
- Product price: Rs 1,00,000
- No-cost EMI term: 12 months
- Interest without no-cost EMI: Rs 12,000
- Total cost without no-cost EMI: Rs 1,12,000
How It Works
Under a no-cost EMI plan, you pay the same amount each month over the plan’s duration without any additional interest.
- Monthly EMI: Rs 1,00,000 ÷ 12 = Rs 8,333.33
- Total repayment with no-cost EMI option: Rs 8,333.33 × 12 = Rs 1,00,000
This means you pay exactly Rs 1,00,000 for the TV, spread over 12 months, without any extra costs or interest. However, while there’s no direct interest charge, be aware that other fees or adjustments might affect the overall cost.
Key Considerations Before Opting for a No-Cost EMI
- Eligibility Criteria: Check for specific requirements such as credit score thresholds or the need for particular credit cards.
- Product Price Comparison: Compare the EMI price with the regular cash price to ensure you’re not overpaying.
- Tenure Options: Evaluate the different tenure periods and choose one that suits your budget.
- Prepayment Penalties: Some plans may penalize early repayment. If you expect to pay off the EMI early, review the terms to avoid extra charges.
- Processing Fees: Watch out for any upfront or hidden processing fees.
- Credit Score Impact: Timely payments can boost your credit score, while missed payments can negatively affect it.
- Terms and Conditions: Read all terms and conditions carefully before committing to the EMI plan.