Do You Know The ‘Real’ Cost Of ‘No-Cost’ EMI?

In the present day scenario, when online shopping has become the norm, we are almost sure you must have contemplated getting one of the Best Credit Cards in India, to make the shopping experience more convenient. With any of the reputed Credit Cards in hand such as an SBI Credit Card or an HDFC Credit Card, you enjoy attractive features such as free credit period of 45 days, flexibility to convert retail purchase into easy EMIs, balance transfer, reward points, and additional savings and discounts.

However, with the “No Cost EMI” service being offered by a large number of e-commerce portals, many shoppers find continued comfort in their existing mode of payment and scrap the idea of availing a new Credit Card.

Often we get swayed by online shopping schemes like no cost EMI and make instant purchase decisions. But, do you know the real cost of a No Cost EMI? Is it as lucrative as it sounds? Let’s find out.

No Cost EMI

When you set out to buy a fast-moving consumer good online such as a home appliance or a smartphone from a shopping portal, you are often attracted to an option of making your purchase through a No Cost EMI. As the name suggests, it seems as if you are not required to pay any additional interest, while still being able to pay for your purchase with the help of EMIs.

So, how does this really work? Well, let us help you by throwing some light on this unique concept.

Actual Cost of No Cost EMI

As per a guideline laid down by the Reserve Bank of India in the year 2013, banks are no longer allowed to offer interest-free or 0% EMI scheme to its customers for retail products. However, banks and e-commerce websites have found out a way, wherein they could pass on the benefit of No Cost EMI Schemes to their customers, without infringing the guideline.

To do so, when a customer buys a product, worth say, Rs. 15,000 from the website, the customer is given an option to pay the amount in 6 instalments of Rs. 2,500 each. Since this totals to Rs. 15,000 the customer is compelled to think that the price is interest-free. What the customer doesn’t understand is that the site also offers a discount of Rs. 318. This makes the actual billed amount to be Rs. 14,682, whereas the customer is made to pay the initial Rs. 15,000 through the 6 EMIs. The discounted amount in such a case is nothing but the interest that the bank is charging.

Additional Charges

In addition to the discount that the customer is not receiving, they will also need to pay the taxes to your bank, for availing the service. Unfortunately, this cost isn’t conveyed at the time of making the purchase. 

Other Sneaky Details

In most cases, a No Cost EMI is only offered on select products. Besides, the customer has to be a cardholder or a customer of the bank which offers the scheme, in order to avail it. If not, they may not be able to enjoy the offer. As one may know, owning a debit card or an EMI card, comes at its own cost, which adds up to the overall purchase price, but isn’t accounted for.

Moreover, it is crucial to know that most e-commerce website offers the No-Cost EMI facility for products that they need to sell off at the earliest to make way for new ones, implying that such products may not be ‘best-buys’ in the truest sense of the term.

Final Verdict

There are times, when as a customer you may wish to purchase certain products, which may be beyond the limits of your budget. In such cases, it may prove to be beneficial for you to avail the No-Cost EMI facility, and pay for the product in parts. However, while you do that, you must be aware that you are not necessarily on the benefitting end of the deal.

Since you are opting for an EMI, you must take into consideration the repercussions of not being able to pay the same on time. Not only will it call for action from the retailer, but may also result in a dip in your credit score, which isn’t a risk worth taking.

Also, if it isn’t a product you genuinely need, opting for debt may not be the right way to procure it. You can instead wait for some time, till you are in a position to make the payment upfront, and only then go ahead to make the purchase. If not, it is much better to pay for the purchase using your Credit Card Online, which will not only allow you to enjoy the product without making an upfront payment but will also help you reap some additional benefits in the form of reward points and instant cashback alternatives.

Also Read: Is There Any Ideal EMI Range – How to Calculate it?

To apply online for Credit Cards, Secured Loans and Unsecured Loans, visit www.mymoneymantra.com, the leading online lending marketplace that offers financial products from 70+ Banks and NBFCs. We have served 2 million+ happy customers since 1989.