No Cost EMIs on Credit Cards: A Good Option for You?

With the start of a festive season, many retailers and online shopping platforms have started offering various discounts and offers to attract customers and scale up their business. No cost EMI credit, which is also known as a Zero Interest EMI credit, is an offer you will see many retailers marketing aggressively throughout the festive season. In this article, I will tell you whether opting for a No Cost EMI through your Credit Card is a good option for you or not:

What is a No Cost EMI?

• No Cost EMI is a credit facility offered by the banks, Non-Banking Financial Corporations (NBFCs), and other fintech players that offer credits/loans to consumers, mainly via credit cards. Nowadays, some banks and other financial institutions have started providing this facility via debit cards and virtual credit limits as well.

• All the major financial institutions, like HDFC Bank, SBI, ICICI Bank, Axis Bank, HSBC Bank, Bajaj Finserv, Zest Money, etc. offer Zero Interest EMIs through their credit cards, debit cards, and virtual credit limits on major online platforms like Amazon, Flipkart, and offline outlets like Reliance Digital, Croma, etc.

• When you buy an expensive item through your credit card, the financial institution offers to convert the payment into Equated Monthly Instalments, popularly known as EMIs. Generally, financial institutions charge interest for such credit. But, with a No Cost EMI facility, you do not have to pay any interest for availing the credit with your credit card.

• So, technically, when you opt for a Zero Interest EMI, you pay only for the price of the product and the one-time processing fee charged by the bank to process your loan. The processing fee varies from lender to lender. It generally ranges from 1-3% of the total amount. Some financial institutions do not charge any processing fee to process your application.

• The main purpose of a No Cost EMI facility is that it lets you buy an expensive item for affordable monthly instalments without paying any extra amount.

• For example, suppose you have purchased a mobile phone of Rs 60,000 through 6 months No Cost EMI facility. You will get the mobile phone immediately and pay an instalment of Rs 10,000 each month for 6 months. If your financial institution charges any processing fee, you will have to pay it additionally.

• When you pay a processing fee or other hidden charges, the credit facility cannot be termed as No Cost EMI credit since it involves some cost. Therefore, many companies prefer to call such credits as Low-Cost EMI credit or Zero Interest EMI credit.

What is RBI's take on No Cost EMIs?

The Reserve Bank of India has given strict guidelines to financial institutions on offering No Cost EMIs. RBI says that the concept of No Cost EMI is non-existent since the banks indirectly charge the interest in the form of processing fees or sometimes the merchants add the interest amount in the price of the product, which is not a fair practice and just another marketing gimmick. Therefore, many leading financial institutions charge the interest monthly and give it back to the customer in the form of a cashback or an upfront instant discount.

(Image source: freepik.com)

What are the benefits of No Cost EMIs to the customers?

1. If you are eyeing some expensive item that you cannot afford to pay for upfront, you may buy it with Zero Interest EMIs.

2. Although you do not have to pay the upfront amount, you get the delivery of the product immediately.

3. Zero Interest EMI, which was once limited to expensive electronic items like smartphones, washing machines, and laptops, etc., is now available for almost all the items you would like to purchase, such as furniture, travel, apparel, jewellery, cosmetics etc.

4. It helps you improve your lifestyle as you can go for out-of-pocket items at affordable instalments.

What are the disadvantages of the No Cost EMI Credit to the customers?

1. As discussed earlier, a No Cost EMI credit can also be a Low-Cost EMI credit. You might end up paying a lot more than what you would have paid in cash.

2. You might end up buying a product you don't need because you get tempted by the offer.

3. The entire credit amount on the credit card gets blocked until you start paying the EMIs.

4. The bounced EMIs can negatively affect your credit score.

Why do banks and financial institutions provide this offer?

Providing the facility of Zero Interest EMI is beneficial to banks and financial institutions in many ways.

1. The processing fee on such credits is usually higher than normal credits.

2. Banks and financial institutions do not lose on the income as the interest is charged in some or another way.

3. A customer is likely to use the credit card more often to get the benefit of the offers.

4. A customer sticks to the credit card for a long period.

How to shop with No Cost EMI?

While buying a product via an online shopping platform with No Cost EMI offer, you need to follow this procedure:

1. Choose the product you want to buy and see if your credit card company offers a No Cost EMI option for that particular product. You will be able to check this on the retailer's website, under price details or offers.

2. While making the payment, select the No Cost EMI option from all the available payment options.

3. Choose the credit period and the EMI suitable for you.

4. Input your credit card details and OTP to make the purchase final.

5. The entire principal amount will be blocked on your credit card, and as you pay the EMIs, the amount will be gradually restored.

6. You will get all the credit details through an email at your registered email address.

Should you opt for No Cost EMI?

In most scenarios, No Cost EMI is a marketing technique. With many retailers constantly marketing your favourite product with No Cost EMI credit, it is highly possible that you may get tempted to buy it and benefit from the offer.

People usually end up buying the product they do not need because they get trapped in marketing gimmicks. Therefore, before making the purchase decision it is vital to know if you really need the product. You should also and read the terms and conditions to know about the hidden charges that may not be mentioned upfront.

The possibility of you paying a higher amount with No Cost EMI is comparatively higher than buying the product in cash. Hence, you need to analyse whether the product is worth the extra price you pay.

It is advisable to do your homework before opting for Zero Interest EMI. Check for the actual price of the product with competitors, check for the processing fee and any other hidden charges. If the financial institution is actually providing the credit with No Cost EMI or Low-Cost EMI and you feel you really need the product then, there is no better deal. But if you know it is a marketing gimmick or your need for the product can be postponed until you save enough money to purchase it in cash, you can avoid opting for a No Cost EMI.

Warm Regards,
Ketki Jadhav
Content Writer

Join Now: PersonalFN is now on Telegram. Join FREE Today to get ‘Daily Wealth Letter’ and Exclusive Updates on Mutual Funds