How Does No Cost EMI Work?

The term “no-cost EMI” gives a huge relief to buyers as they know it helps them purchase their required item without having to pay anything in return. This is the scheme that divides the total price of the product into multiple equated monthly installments (EMIs). Thus, when you like an item, which you think you cannot afford, the provision to pay the price in EMIs makes things easier.

The no cost EMI option is offered by businesses having electronic gadgets, appliances, etc. as their primary products.

What is No Cost EMI?

When you visit a shop to buy a mobile phone of your favorite brand, the first thing you check is its price. However, if it’s within your budget, you proceed otherwise you compromise and search for something else within your feasible price range.

With no cost EMI option, you never have to settle down for anything less than what you want. You can purchase the desired mobile phone even if the cost is more. The no cost EMI facility allows buyers to get the product price distributed in multiple installments throughout the repayment timeline.

The customers are too happy to pay zero-cost EMI, which they think is without any interest added. However, they are unaware that no EMI is without interest. Though they think they are paying only the product price, they unknowingly pay the interest indirectly. How?

Does “No Cost” genuinely mean no cost?

If you are going to avail no cost EMI option anytime soon, it is important to understand the actual no cost EMI meaning. Those who think that it is a zero cost EMI are highly mistaken. When retailers offer the no cost EMI scheme, they ensure either of the two things:

Interest is equal to Discount

When customers are asked to pay the product price only, they feel lucky to have an EMI option without any extra interest payment. Well, if you are among them, it’s time to get out of the myth. The retailers introduce no cost EMI offer for the products with discounts. They make sure the discount amount is equal to the interest amount. As a result, the interest is already included in the total product price that the customers have to pay.

For example, you purchase a refrigerator worth INR 25,000. If the discount applied on it is 10%, the actual cost for the products comes to 22,500. But as you decide to go for the no cost EMIs option, you have to pay the full price of INR 25,000. This price that you will be paying will include both the actual discounted price plus the interest that the seller incorporates without you knowing of the same. Thus, the zero percent interest is not the zero interest rate in the real sense.

Interest is added to the product price

No cost EMI offers sound like a blessing for those who desire to buy an expensive item but do not have that much of instant cash available with them. However, the way these no cost EMI work is critical. It appears to you that you are only paying the price, but the interest remains added to it already. Yes, when you are told that you have to pay the full price for an appliance or a device without having to pay the interest, it’s high time you understand how no cost EMI works on credit cards and other installment payment methods.

For example, if you want to buy a Smartphone worth INR 22,500 and you decide to go for the no cost EMI option, the same product will be available to you at INR 27, 250, including 10% of the interest component as applicable. Thus, a customer is paying the interest, but without realizing it. Hence, a no cost EMI is not a zero cost installment in any manner.

When to Use No Cost EMI?

Today, people are not restricted to having a simple lifestyle. As a result, each individual influences the other, giving rise to lifestyle obsession, which keeps affecting consumer behavior every now and then. This obsession matches the lifestyle that other individuals and families have. As a result, they try to benefit from the no cost EMI scheme available on whatever product they want to purchase.

They think they are getting huge relief from the interest paid as no cost EMIs would not want them to pay any kind of extra amount.

However, there is a portion of customers who genuinely need some appliances or devices. For them, no EMI costs are quite helpful. For example, you require a laptop for your kids’ online classes or your refrigerator has given up and you want to buy a new one. Such requirements are a must to fulfill at once. This is when the no cost EMIs help. Though you have to pay the interest in some way, the distribution of the whole amount into equal installment make the purchase easier.

Let us have a quick look to understand when the no cost EMI plan is the right one:

• When you come across a good deal
• You do not have cash upfront to pay
• If the product you need is unaffordable in lump sum, but could be tackled when converted to EMIs
• When you want to build your credit history or make your credit score trustworthy.

Benefits of No Cost EMI

When you avail no cost EMI scheme, the processing fee and other requirements remain the same. The only thing that changes is the payment method. Paying offline and online retailers becomes much easier. Besides this, the no cost EMI plan also offer other advantages. Some of them include:

• The best and top online retailers, like Amazon and Flipkart , offer the no cost EMI option to customers. Hence, you can buy the best products from best brands at your convenience.
• The no cost EMIs are also offered by offline retailers in association with the major banks. Thus, you can visit a store and opt for no cost EMI amount to be paid regularly.
• The monthly installments can be paid in various ways. The online and offline retailers offer a wide range of payment methods for you to choose from. You can pay using any online portal, payment gateway, net banking from bank account, credit cards, debit cards, etc.
• Though you have to pay the interest cost in some way, you don’t realize paying an additional amount on the discounted price. In short, for you the full amount is the final price that you have to pay for the product.
• The no cost EMI option is available for exchange offers too.
• It helps customers while they desire buying products in bulk during festive seasons.

Limitations of No Cost EMIs

While the benefits are many, there are limitations too that people must know. Some of the disadvantages of going for these EMI schemes are as follows:

• The final amount you pay for the product is more than its actual price.
• There is a fixed processing fees that you have to pay for the EMIs to activate.
• Even if you return the product, you won’t get complete refund. The interest cost will be deducted.
• Sometimes, the availability of no cost scheme on certain products make customers buy things even though they don’t necessarily need them.
• You will have to pay GST on the interest cost.

No Cost EMI For Credit Card

A no cost EMI for credit card involves three key players – the customer i.e. yourself, the merchant, and the institution your have your bank account in. As soon as your credit card is swiped against a purchase, the amount gets immediately deducted from the credit limit that you have.

As you go on paying the installments every month, the EMI amount covers up for the deducted credit limit. Once all the installments are paid within the EMI tenure, the bank not only retsores the limit, but also increases your next credit limit given your trustworthiness as borrowers.

To understand how no cost EMI works on credit card, let us consider the following example:

Suppose you have a credit limit of INR 1 lakh, and you buy a product worth INR 50,000. As soon as you purchase the product, your limit gets reduced to INR 50,000. So, if you choose to repay the amount in five months through an EMI of $10,000 each month, the credit limit keeps increasing. The increase is equal to the monthly payment you make towards your credit card.

Thus, at the end of five months, your credit limit is again INR 1 lakh.

No Cost EMI vs Regular EMI

The no cost finance scheme is quite misleading. In 2013, The Reserve Bank of India stated in its circular that there is no existence of such concept of zero percent interest. When an amount is lent, it will have an interest amount added.

While a regular EMI clearly mentions about the interest amount borrowers are required to pay, the no cost EMI payment option keeps the interest charges hidden.

The borrowers who choose regular EMIs after the down payment if asked for, the installments include the interest amount and the processing fee. On the other hand, the ones who choose to opt for no cost EMI, their interest charges and the processing fee remains included in the installment amount. As a result, they think they are not having to pay any additional charges on the product cost they are paying.

As a result, when it’s the no cost EMI option, it is recommended that borrowers understand how does a zero cost EMI work.

Why MyFinPartner Offers Best No-Cost EMI?

If you are finding it difficult to trust any financial institution with the no cost EMI and want to know what actual cost you are required to pay, here we are at MyFinPartner to help you.

No matter how expensive your next buy is, you can have our no cost EMI facility for a more feasible repayment option. We make the distribution of payment clear to you so that you don’t feel trapped at a later stage.

Connect with our experts for all assistance and guidance. We will help you be prepared financially for feasible repayments.

FAQs

Q1. How is the no cost EMI calculated?

A. The no cost EMI is calculated using a very simple formula = Total purchase amount / No, of installments.

Q2. Is GST applicable on the no cost EMI?

A. Yes, banks charge GST on the purchases over and above the amount.

Q3. Is no cost EMI free of interest component?

A. No. The interest charges are already added in the decided instalment for each month. It is done in either of the two ways:

• The interest remains added to it already.
• If the product is available at discounted price, the retailers make sure the discount amount is equal to the interest amount, which is added to the product cost.

Q4. What are the advantages of no cost EMI?

A. The benefits are as follows:

• The best and top online retailers offer the no cost EMI option to customers.
• The no cost EMIs are also offered by offline retailers in association with the major banks.
• The monthly installments can be paid in various ways. You can pay using any online portal, payment gateway, net banking from bank account, credit cards, debit cards, etc.
• The full amount is the final price that you have to pay for the product.
• The no cost EMI option is available for exchange offers too.
• It helps customers while they desire buying products in bulk during festive seasons.

Q5. What are the limitations of the no cost EMI?

A. The disadvantages are listed below:

• The final amount you pay for the product is more than its actual price.
• There is a fixed processing fees that you have to pay for the EMIs to activate.
• Even if you return the product, you won’t get complete refund. The interest cost will be deducted.
• Sometimes, the availability of no cost scheme on certain products make customers buy things even though they don’t necessarily need them.
• You will have to pay GST on the interest cost.

Q6. Why choose MyFinPartner for no cost EMI options?

A. No matter how expensive your next buy is, you can have our no cost EMI facility for a more feasible repayment option. We make the distribution of payment clear to you so that you don’t feel trapped at a later stage. Our people will help you be prepared financially for feasible repayments.

Q7. Cite an example of how no cost EMIs work on credit cards.

Suppose you have a credit limit of INR 1 lakh, and you buy a product worth INR 50,000. As soon as you purchase the product, your limit gets reduced to INR 50,000. So, if you choose to repay the amount in five months through an EMI of $10,000 each month, the credit limit keeps increasing. The increase is equal to the monthly payment you make towards your credit card.

Thus, at the end of five months, your credit limit is again INR 1 lakh.

Q8. How is regular EMI different from no cost EMI?

The borrowers who choose regular EMIs after the down payment if asked for, the installments include the interest amount and the processing fee. On the other hand, the ones who choose to opt for no cost EMI, their interest charges and the processing fee remains included in the installment amount. As a result, they think they are not having to pay any additional charges on the product cost they are paying.

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