These days, buying a mobile phone, TV, refrigerator, laptop or any other expensive item has become much easier than before. The biggest reason for this is no-cost EMI. Be it online shopping platforms or offline stores, attractive offers like “0% interest” and “no-additional cost EMI” are seen almost everywhere. Seeing such advertisements, many people immediately decide to buy, as they do not have to pay a large amount of money at once. But the question is, is no-cost EMI really completely free? In fact, such offers usually have some conditions and hidden costs associated with them, which many consumers come to know about later. Therefore, it is important to understand all its terms and conditions carefully before taking any EMI offer.
Simply put, no-cost EMI is a facility in which you pay the cost of an item in the form of monthly installments or EMI instead of paying it in one go. The company or bank claims that you will not have to pay any interest on it. For example, if you buy a mobile phone worth Rs 30,000 and opt for a no-cost EMI for 10 months, you will end up paying around Rs 3,000 per month. It may seem like you are buying an interest-free mobile phone. But the real picture is not always like this.
So how do banks or finance companies make money? If they do not charge interest, then where does their income come from? You will be surprised to know that the answer lies in the terms of the offer. In many cases, the discount that you would have received by paying in one go, if you opt for a no-cost EMI, the discount is reduced or not available at all. In some cases, you also have to pay processing fees, documentation charges or other fees. So, it is not a wise thing to decide just by looking at “0% interest”.
The biggest pitfall of no-cost EMIs is the secret charges. The processing fee usually ranges from Rs 99 to Rs 299. 18% GST may be levied on the interest portion. If you close the EMI early, you may have to pay a pre-closure charge of 2% to 3%. When you add all these costs together, the “free” EMI can actually cost you more. According to experts, when customers do not have to pay a large sum at once, they tend to view the costs as small. Taking advantage of this, companies try to push customers to buy products that are more expensive than their budget. Also, choosing EMI creates a credit record in your name. If you repay the EMI on time, your CIBIL score will be good. However, if you pay the EMI late, you may have to pay higher fees or your CIBIL score may be bad. This can make it difficult to get a home loan or car loan in the future.
Things to consider before buying
Check the total price of the item, not just the EMI
Know about processing fees and other charges
Read all the terms and conditions of the offer
Choose the EMI as per your income
Buy based on your needs, not the offer
