Various banks levy fixed non-refundable processing fees for EMI transactions, which is in addition to the cost of the product. Besides, in case you return the product to the seller and procure a refund, you will still lose the processing charges.
Unlike the previous zero-cost EMI schemes that were ruled out by the RBI, the currently popular no-cost EMI charges interest but the amount is deducted from the final sum paid by the consumer.
In other words, according to Gaurav Jalan, CEO and Founder, mPokket, the buyer does not pay any sum exceeding the product price as the discount equivalent to the interest amount being levied by the bank is offered by the seller or manufacturer and not the bank.
Having said that, one of the disadvantages of these EMI options is that typically, no-cost EMI options are only available on credit cards. Some NBFCs have also begun offering no-cost EMIs through special EMI cards. Experts say one should check with their banks in advance as these no-cost EMIs are only offered by certain banks and retailers and are applicable solely for specific products.
No-cost EMI is a trending and popular topic as it helps one spread their expenses over three to six months and one can conveniently pay for high-cost products such as a new TV or some furniture over a few months. Jalan says, “No-cost EMIs help buyers manage cash flow constraints while investing in high-value goods, which they would otherwise be unable to purchase.”
He further adds, “Buyers also have the option of choosing the tenure as per their monthly budget.” Choosing the tenure according to your convenience will help you budget your spending every month, especially after major festive expenses.
What’s more, experts say, by acting as a small loan, no-cost EMIs help build buyers’ credit scores, provided all the EMIs are paid on time.
However, remember that these deals are not always without extra costs. “Various banks levy fixed non-refundable processing fees for EMI transactions, which is in addition to the cost of the product. Besides, in case you return the product to the seller and procure a refund, you will still lose the processing charges,” adds Jalan.
Therefore, while no-cost EMIs may seem to be a good option, industry experts suggest that one should always weigh all their pros and cons before opting for a loan.
Jalan further points out, “One should only go for them if one cannot pay the product amount upfront.” Even then, try to make sure to pay EMIs on time to avoid extra charges and interest amounts being added by the credit card issuer, which will be detrimental to your credit score.