No cost EMI has changed the way consumers purchase products. Buying the next electronic or furniture by paying money in EMI’s without paying any interest
The question which most of us think is how the hell does a lender make money if its no-cost EMI.
The answer is that the brand whose product you wanted to purchase pays interest on your behalf to the lender. Makes this is a great proposition for everyone. The lender gets assured interest, Brand gets sales and customer gets easy payment terms.
But there truly never is a free lunch unless you have checked on these things
Point 1: Check the return policies
When you purchase a product on non-cost EMI technically you have still taken a loan but just that it has no interest payments. This means that in case you don’t like the product and return it you still need to pay the EMI or close the loan with a refund. The closure process is usually hidden and can be quite painful depending upon the lender.
Point 2: Check the GST on interest rates
As per RBI regulations, Banks can’t give no cost EMI’s. To circumvent this you would find that players discounting the product price with the interest which you need to pay. However, in banks record, you still need to pay the interest and on that, a GST of 18% is levied. So yeah, the no-cost EMI becomes a low-cost EMI
Point 3: Check the splurge behaviour
NO COST EMI coupled with marketing around it makes almost all products look very tempting. This all looks great until one day you realise that your EMI each month on credit card is more than 60% of your salary. And since its an EMI there is nothing which you can do.
Point 4: Check the constant Cross-Sell calls
Finally, taking a no-cost EMI product opens you to phone calls and sales calls on cross-sell of lots of products. Especially, if you take it from NBFC’s like Bajaj, Capital First, Tata Capital expect very aggressive calling. While most of the time we ignore them, why expose us to sales of products which we may not need at that point.
So before you purchase that next item on NO COST EMI, just remember these four points. Hopefully, you will make a better financial decision.
In case you are not sure of how this works and won’t more clarity feel free to Contact Us.
Also, since most no-cost EMI’s are on credit card its good to understand when to use them. Check out our blog on this