No cost EMI: Pros and cons of buying expensive items using the payment facilty

Rising inflation and minimal salary hikes are considered to be some of the major problems for every earning individual. Most people run through a 9 to 5, so they can fulfil their aspirations of buying expensive items in the long run. No-cost EMIs offer a solution to those who wish to purchase luxury products but can’t afford to pay the price upfront.

No-cost EMI is a payment method that allows the customer to purchase desired things through monthly instalments. Interestingly, this payment method doesn’t force you to pay a bigger amount upfront, but you are actually paying more for a product than its original price. Read on to know how

Here’s how no-cost EMI works

No-cost EMI has become one of the most common payment methods offered by e-commerce websites, including Amazon and Flipkart. To lure the customer into buying the product, retailers offer a discount equivalent to the interest amount. To understand the hidden play behind no-cost EMI, let us assume you want to buy a washing machine worth Rs 30,000.

If you choose a three-month no-cost EMI plan with an interest rate of 15 per cent, you have to bear an interest amount of Rs 4,500.

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In case you pay the whole amount up front, you will be able to buy the machine for Rs 25,500, but if you opt for no-cost EMI, you will have to pay the total price, i.e. Rs 30,000. The interest amount you pay will be given to the financier bank, and the retailer will take the remaining amount.

While we claim that no-cost EMI isn’t actually no cost, the payment method does have some benefits.

Here are the pros of no-cost EMI

• No-cost EMI allows buyers to manage cash flow constraints while buying expensive things. This payment method will enable them to fulfil aspirations to purchase high-value products without having to pay upfront.
• Buying utilities using no-cost EMIs will let the customer build their credit history by taking smaller loans. However, it is important to pay EMIs on time.
• No-cost EMIs allow the customer to choose the tenure depending on their monthly budget.
• Allows more time to pay conveniently over a few months.

Here are the disadvantages of no-cost EMI

Despite allowing temporary financial ease, no-cost EMI does have various disadvantages.

• As explained above, the customer pays more when using no-cost EMI.
• Customers may have to bear a fixed, non-refundable processing fee for the no-cost EMI.
• No-cost EMI can encourage the customer to buy products they don’t need.
• If the customer wants to return the product and get a refund, they will lose the money paid as an interest amount.
• Some NBFC firms offer EMI cards only to customers with a credit score over a certain value. This implies that not all customers can avail the benefits.

Should you choose no-cost EMI despite the cons?

After assessing the pros and cons of no-cost EMI, it is safe to say that one should buy a product using this payment method only if they are sure about the purchase. It is advisable to use the no-cost EMI option to purchase things that come under your ‘needs’ category against something you’d define as your ‘wants’.