Come this Diwali, millennials are already planning their next big purchase. Shopping has become increasingly convenient thanks to the ready availability of personal loans, unsecured credit cards, and services from fintech companies that offer “Buy Now, Pay Later.” shopping can provide a hassle-free way to make important purchases without incurring any interest charges. However, it is important to keep a few things in mind to ensure a seamless and hassle-free experience. No-cost EMI is a payment option provided by retailers. or financial institutions allow you to purchase products without any additional interest charges and repay the total cost in manageable installments.
Interpretation of no cost EMI scheme
No-cost EMI is proving to be a preferred financing option among shoppers as it allows them to purchase high-value items without paying any interest charges. This approach effectively spreads the costs of significant purchases, making them more budget-friendly.
However, it is vital to know that no-cost EMI is not completely free. The retailer or financial institution still profits from the arrangement, often by charging the retailer a higher interest rate than they would offer to a customer seeking a traditional loan. Additionally, some retailers and financial institutions may impose processing fees on transactions involving no-cost EMI. However, not all products may offer a no-cost EMI option and eligibility requirements may vary depending on the particular retailer and financial institution.
How does the “No-cost EMI” plan work?
No-cost EMI is a payment plan that allows you to split the cost of a product or service into manageable monthly installments without paying any interest. Essentially, you are only covered for the total price of the product, free of any extra charges.
No cost EMI plan can be applied in two different ways:
Discount equivalent to interest rate: In this scenario, the retailer provides a discount on the product matching the interest rate associated with a regular EMI plan. As a result, the customer pays the same total amount for the product but extends payments over a longer period of time.
Product cost including interest amount: In this scenario, the retailer includes the interest amount in the cash price of the product. As a result, the customer pays a higher initial price for the product but is exempt from interest payments on their EMIs.
Overall, using a no-cost EMI can be a suitable method for financing important purchases. However, it is very important to thoroughly review and understand the relevant terms and conditions before making this choice.
Is the no-cost EMI option worth your choice?
While no-cost EMIs may seem attractive initially, it is important to carefully consider their pros and cons before making a commitment. This is because this seemingly attractive purchase option can hide potential drawbacks such as hidden transaction fees. There are also some disadvantages to consider before choosing this option:
hidden fillings: Some retailers or financial institutions may impose hidden charges such as processing fees or prepayment penalties on no-cost EMI transactions. It is very important that you carefully review the terms and conditions before signing up for a no-cost EMI plan to understand the applicable charges.
High product prices: No-cost EMI plans are generally limited to products with significant profit margins. As a result, consumers may have to pay a higher total price for the product even though they do not pay any interest charges.
Risk of overexpansion: No-cost EMI plans may encourage individuals to overspend and purchase items beyond their long-term affordability. To ensure that consumers can manage EMIs, it is important to do prudent budgeting before opting for a no-cost EMI.
Effect on credit score: Missing an EMI payment can have a detrimental impact on one’s credit score. This may make it difficult to qualify for loans and credit cards with more favorable interest rates in the future.
How to choose the best no-cost EMI plan?
If you have a clear and definite need for the product you are considering buying using a no-cost EMI plan and you are confident that you will be able to make monthly EMI payments throughout the entire period, no-cost EMI becomes an extremely useful tool. Simplify your purchasing process.
No cost EMI gives you the opportunity to purchase a product without having to pay the full price upfront. This can be particularly advantageous when you are working under budget constraints or need a high-value product. Below are some suggestions to avail no-cost EMI plans prudently:
Compare offers: Various lenders and retailers may offer various no-cost EMI options; Therefore, it is recommended to compare these offers before making a choice.
Check availability: Consider eligibility criteria as they may vary depending on the specific retailer, financial institution, and product you are considering purchasing.
affordable budget: Before opting for a no-cost EMI plan, make sure you have the financial capacity to afford EMIs comfortably. Calculate the total cost of the product over the EMI period to make sure it fits your budget.
View terms and conditions: Thoroughly review the terms and conditions to have a comprehensive understanding of any hidden fees or charges that may apply.
Timely EMI payments: Making your EMI payments on time and in full is vital to avoid late payment fees and charges. Additionally, it helps protect your credit score from negative effects related to missed payments.
Pay attention to the cancellation time frame: Most no-cost EMI plans have a specific cancellation period. If you cancel your plan after this period has passed, you may possibly face a cancellation fee.
Estimate potential transaction costs: Be prepared to bear the processing fee in case of cancellation of a no-cost EMI plan as some retailers or financial institutions may charge this fee.
Understand the refund procedure: When you cancel a no-cost EMI purchase, it is important to return the product to the seller. The retailer will then initiate the refund process, which can take up to several days or even weeks, depending on the retailer’s policies.
It is vital to have a clear understanding of your financial limits before jumping into a no-cost EMI plan. No-cost EMI arrangements may inadvertently encourage overspending as the full impact of the purchase may not be apparent until you start making monthly payments.
It is equally important to keep in mind that no-cost EMI is not truly cost-free. The retailer or financial institution still receives revenue from the arrangement, usually through a higher interest rate charged to the retailer, which may exceed the interest rate a traditional loan applicant would face. Additionally, some retailers and financial institutions may impose processing fees on no-cost EMI transactions.
Convenience should not be the only criterion for your choice. Given the multitude of payment options available, it is wiser to decide between the alternatives available rather than succumbing to an option that may not be as advantageous as it initially seems.
“Exciting news! Mint is now on WhatsApp Channels” 🚀 Subscribe today by clicking the link and stay up to date with the latest financial information!” Click here!