The festive season is a time of joy and celebration, often accompanied by unplanned expenditures due to a deluge of enticing discounts. These discounts can lead to unexpected high spending, which may strain your finances. This festive season is no exception, as brands entice customers with various discounts and convenient repayment options.

To make purchases more affordable, manufacturers often collaborate with lenders to offer No-Cost EMI options, which can be a lifesaver for many consumers. Let’s explore the concept of No-Cost EMI and discuss everything you need to know about it.

What is No-Cost EMI?

No-Cost EMI, also known as zero-interest EMI, is a repayment process that allows you to pay for your purchases in installments without incurring any interest charges. Unlike traditional EMIs, where you need to pay interest over a specific tenure, No-Cost EMI enables you to pay only the product’s actual price in equal installments.

For example, if you purchase a washing machine or a mobile phone worth Rs 24,000 and prefer not to pay the entire amount upfront, you can opt for a No-Cost EMI, which allows you to pay Rs 2,000 per month for 12 months. This way, you save on interest while making your repayment process convenient and stress-free.

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On the surface, No-Cost EMI appears highly attractive as it lets you delay your payment without incurring interest charges. However, there’s a catch that deserves your attention.

Depending on the lender, there may be a nominal processing fee, typically in the range of 2-3 percent of the purchase value, which is paid upfront. Additionally, when availing a No-Cost EMI, you might have to forgo any discounts offered. This means that if a mobile phone’s actual price is Rs 20,000 with a 10% discount, it would cost you Rs 18,000 for a one-time payment. However, choosing a No-Cost EMI on the same product might require you to pay the full Rs 20,000.

Should You Opt for No-Cost EMI?

The decision to opt for a No-Cost EMI should be based on your requirements and the price of the product you intend to purchase.

Adhil Shetty, CEO, Bankbazaar.com, says, “No-Cost EMI is beneficial when you intend to purchase high-value products, such as appliances, gadgets, or furniture, which may strain your finances if paid for all at once. Spreading the cost over several months can make these purchases more manageable.”

When to Consider No-Cost EMI?

1. Higher Price: If the product’s price is significantly high and paying for it upfront would cause financial strain for several months, opting for a No-Cost EMI can be a wise choice.

2. Multiple Purchases: If you plan to buy multiple products with a lower individual cost but a substantial combined amount, No-Cost EMI can help you manage your finances better without unnecessary burden.

3. Inflation Consideration: No-Cost EMI can potentially save you money in the long run due to inflation. If you’re paying 12 EMIs of Rs 2,000 each for a product worth Rs 24,000, it’s possible that the product’s price may increase over the next year, leading to cost savings.

In this situation, No-Cost EMI offers the advantage of manageable monthly installments without any additional charges. However, you might miss out on discounts.

When to Avoid No-Cost EMI

1. Affordable Upfront: If you can afford to pay for the product in one go without straining your finances, it’s advisable not to opt for No-Cost EMI. This way, you can enjoy the product at a discounted rate and avoid the stress of future installments.

2. Multiple Repayments: Continuously availing No-Cost EMIs for various products can lead to a cumulative burden of multiple monthly repayments. This can jeopardise your financial health, as a significant portion of your earnings goes toward EMIs, leaving little for household expenses.

3. No Free Products: No Cost EMI doesn’t mean you’re getting a product for free. You’re paying the entire actual cost, but over several months. Be mindful that responsible financial planning is crucial, considering your future financial well-being, liabilities, responsibilities, and reasonable spending restraints.

Shetty explains, “No-Cost EMI provides the convenience of breaking down payments without incurring additional interest, making it a practical option for those seeking financial flexibility.”

In conclusion, No-Cost EMI can be a valuable tool for managing your finances, especially when dealing with high-priced products or multiple purchases. It allows you to spread your payments over time without incurring interest charges. However, it’s essential to assess your financials before opting for it to avoid a debt-trap.