By OneCard | January 30, 2025
Credit cards offer flexibility and convenience in payment. Credit cards have various financing options, including EMIs, no-cost EMIs, and loans. EMI stands for Equated Monthly Installment. EMI is a financing option that allows you to break down the cost of your purchase into equal monthly instalments, but it comes with additional interest or processing charges.
Are you planning a big purchase but short on funds to pay? Then, no-cost EMI can be your lifesaver. It makes the whole experience far more convenient. You can purchase an expensive appliance or item without accumulating interest. This concept of no-cost EMI has changed the buyer’s perspective and made shopping more accessible. But what exactly is a no-cost, zero-cost EMI? Keep reading to find out.
Table of contents:
A no-cost or zero-cost EMI is a financing option that allows you to break down the cost of your purchase into equal monthly instalments without any additional interest. This means you’ll only be paying the item’s actual price, which will be spread out over several months.
No-cost EMI allows customers to buy products in instalments rather than pay an upfront amount. The interest component is waived. Therefore, you only pay the actual price of the product divided into equal instalments, making it an efficient option. These EMIs are generally spread over 3 to 24 months, depending on the credit card issuers.
In this method, the retailer excludes any discount on the product from the actual price, if applicable. For instance, if the product is at a discount to other customers, it will be offered without a discount to the customer seeking to buy it at EMI. This is known as ’equating discount to interest on EMI ‘. In simpler terms, to cover the interest used to cover the interest you would have paid on a regular EMI.
Certain retailers include the interest component in the product’s actual cost and present it as a no-cost EMI option. In this scenario, the original price of the item has a built-in interest cost. For instance, if an item originally costs ₹10,000, but under the no-cost EMI option, it will cost ₹12,500. Here, the ₹2500 represents the built-in interest amount. Therefore, the customer ends up paying ₹12,500 under the no-cost EMI tag.
Using a no-cost EMI is a straightforward process involving three parties: the merchant, the bank, and you. For instance, if you use your credit card to purchase a mobile phone, the issuer will deduct the actual cost from your credit limit. This limit will be restored once all the instalments towards the EMI have been paid within the agreed-upon time.
Even though a no-cost EMI is an effective financing tool, you need to consider these factors before opting for this option:
Few credit card issuers or banks may apply charges for no-cost EMI. These charges, often called hidden costs, can include processing or late payment fees. It is advisable to check with your credit card issuer or bank for any such hidden charges.
No-cost EMI can be an attractive option, but it’s essential to approach it with a financial assessment. Before purchasing, it’s crucial to assess your finances and ensure the monthly EMIs fit comfortably within your budget without compromising your daily expenses. This responsible approach will allow you to maximise the no-cost EMI option without risking your financial stability.
No-cost EMIs require paying timely instalments to avoid late fees or other charges. Understanding the implications of missed payments and prioritising them in your budget is crucial. Missing an EMI payment can have a detrimental effect on your credit score.
Whenever you make a purchase on your credit card, it offers you a grace period to repay the amount, which is an interest-free period. Interest rates on EMIs can increase the overall cost of the item. Any payment made beyond the interest-free period will incur interest charges, further impacting your credit score.
Also read: When To Use Credit Card EMI and When to Avoid
No-cost EMIs are an effective financing option that empowers you to purchase without worrying about interest charges. They can also help you manage your finances better by enabling you to spread out your purchases over a period of time. However, reading the terms and conditions before availing yourself of them is always important. Pay attention to the interest-free period, the total cost of the purchase, and any potential hidden credit card charges. The next time you are looking to opt for a no-cost EMI, follow this comprehensive guide mentioned above.
**Disclaimer: The information provided in this webpage does not, and is not intended to, constitute any kind of advice; instead, all the information available here is for general informational purposes only. FPL Technologies Private Limited and the author shall not be responsible for any direct/indirect/damages/loss incurred by the reader for making any decision based on the contents and information. Please consult your advisor before making any decision.
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