Everything You Need to Know about Credit Card No Cost EMI

No cost EMI payment options have significantly grown in popularity in recent years. They help you split a large amount into manageable monthly instalment payments. Credit card no cost EMI has been popularised by e-commerce platforms to sell electronics, furniture, and other expensive products. Although, on the outside, it appears you are not paying an interest, it falls on you in one way or another. 

Let’s try to understand what they are, why they are offered, and how credit card lenders and retailers give you the option of no cost EMI on products. 

Defining Credit Card No Cost EMI

It is a payment method offered by online and offline retailers to purchase goods like electronics, mobile phones, furniture, kitchen appliances, and more. The product’s price is broken down into monthly EMIs, which don’t exceed the stated purchase cost.

Things to Consider While Opting for No Cost EMI on Credit Card

When you see merchants offering no cost EMI on credit cards, here are a few things to consider before choosing this payment option. 

• Assess your budget to see how the EMI fits your monthly financial planning. 
• See if the discount offers on the product are better than the no cost EMI option
• Check the duration of the interest-free period. Beyond this, the product won’t be covered under no cost EMI. 

How Does No Cost EMI Work for Lenders?

Lenders offer credit card no cost EMI in partnership with sellers and retailers. These sellers gain an edge over their competitors when offering a flexible payment option for expensive products. This also generates customer loyalty and lender recognition, improving the lender’s market share. 

There are two ways no cost EMI payments operate:

Method 1: In this method, the retailer covers the interest cost of the EMI by not offering discounts typically offered for payments made in full. This interest cost is passed on to you indirectly and recovered over the repayment period. 

For example:

Cost of the product = INR 20,000

EMI interest amount = INR 1,200

No cost EMI price of product = INR 21,200

Method 2: In this method, the retailer adds the interest cost to the selling price of the product.

For example: 

Discount = INR 2,000

Offer price of product = INR 22,000

EMI amount = INR 2,000

Effective product selling price = INR 24,000

Pros and Cons of No Cost EMI

Let’s look at the benefits and drawbacks of credit card no cost EMI.

Pros

• You can make big payments conveniently by breaking them into digestible monthly instalments. 
• It gives you the flexibility to select your repayment tenure.
• It makes buying expensive products convenient. 

Cons

• The interest is added to the total cost of the product, or the original product discount is removed to accommodate the interest amount. 
• The interest entails GST. 
• Some retailers may add a processing fee.
• There is a limit to the range of products having no cost EMI options. 

Conclusion

On the surface, a credit card no cost EMI is attractive, but only under the right circumstances. If you can afford to pay for a product in full and avail of discounts, if any, you should choose to do so. 

If you want to avail of no cost EMI on your credit card, you should only do so if it is viable for your monthly budget. Frequent purchases of high-ticket products through credit card no cost EMI can cause a debt spiral. It is worth knowing that this payment method is not interest-free; the interest is hidden in various ways. 

A well-planned purchase through no cost EMI on credit card can be beneficial. But read the terms and conditions and understand the hidden costs before making your purchase decision—your financial journey counts on it.