Credit cards: Is no-cost EMI really a good deal? Here’s what you should consider before buying | Mint

No-cost EMI facility on credit cards is gaining traction in India, especially during the festival season. In this, customers can buy premium products and pay for the amount in easy and convenient monthly instalments without incurring any extra burden of interest.

This provides an opportunity to facilitate easy and seamless buying through credit card users and a systematic way of repayment according to the terms and conditions established by the respective card issuing financial institution.

But the question arises: Is it really a good deal in the larger scheme of things?

Understanding no-cost EMI

No-cost EMI is a payment method in which cardholders can split the price of a purchase of an article into fixed monthly payments and the price is the same amount at which the article was bought. It appears to be something unique because it allows consumers to be able to buy expensive articles without making direct payments.

Large e-commerce portals like Amazon, Flipkart, and retail stores provide this service in partnership with large banks like HDFC Bank, SBI, and ICICI Bank among others.

How no-cost EMI works

Simply put, in reality, the “no-cost” part is deceptive in a way. The terms and conditions associated with the same should be carefully understood before moving ahead with the same. Now, under the no-cost EMI scheme customers do not have to pay interest explicitly, the interest cost is usually borne by the merchant or paid as a component of the product price. Banks also charge processing fees in some cases, which could be 1% to 3% of the amount.

The Reserve Bank of India has warned against such plans as they have the potential to violate fair pricing norms by camouflaging charges as product prices or processing fees. Applicants should always carefully read the offer terms and conditions before applying for the same.

Advantages of no-cost EMI

• Facilitates small payments: Helps in dividing a large amount into small chunks.
• Quick approval: Provides for smooth ways of quick approval of loans.
• Flexibility in repayment terms: The repayment terms are flexible and easier.

Disadvantages of no-cost EMI

• Hidden fees: Higher price of the item or processing fee can negate the “no-cost” benefit.
• Credit score impacted: Not paying can negatively impact your credit record and hamper your credit score.
• Over spending: Ease of buying can result in buying unwanted goods.

Therefore, credit card zero-cost EMI can be fairly helpful for funding an expensive purchase, but you should also remember to look at the risks, hidden terms and conditions and concealed costs to keep yourself protected from financial stress.

Consider reaching out to the customer care department of your respective financial institution to attain clarification if you have doubts. You can also reach out to a professional financial advisor before signing up for this or similar schemes. These steps can help you in keeping yourself protected from any misunderstandings and future debt problems.

Hence, keeping these things in mind, an individual can make better choices keeping their spending habits and financial requirements in consideration and staying away from unnecessary loans.

Disclaimer: While free EMI offers appear to be attractive, they can lead to overspending and fees. Read the terms and conditions of such offers carefully before using them.