THE FESTIVE SEASON in India brings with it a surge in shopping, further fuelled by e-commerce platform-led offers. From home upgrades to wardrobe refresh, consumers tend to make bigger, more aspirational purchases during this season.
While these purchases are an essential part of festivities, they can also strain household budgets, if not planned wisely. This is where the zero-cost EMI payment option comes into play, allowing consumers to make big-ticket festive purchases manageable without disturbing their monthly cash flow.
Zero-cost EMI vs regular EMI
Many high-value purchases can be converted into standard EMIs, but this option generally comes with an interest rate ranging from 12% to 18% per annum, which adds to the total cost. A smartphone priced at Rs 65,000, for instance, would cost around Rs 70,000 if you choose a 12-month EMI at 15% interest rate.
On the other hand, in case of zero-cost EMIs, no interest is charged. In the above example, a 15% interest rate would lead to a total interest cost of Rs 4,963, which is given as direct discount. Since the interest cost is absorbed by the merchant and offered to the buyer as a discount, the total payment equals the product’s actual price, that is, Rs 65,000.
This makes zero-cost EMIs a convenient way to defer the cost over several months, especially for shoppers who have limited cash in hand. Instead of dipping into savings, consumers can align festive purchases with their monthly cash flows, thereby retaining financial stability.
Making the most of zero-cost EMI
Zero-cost EMI offers clear advantages, but shoppers must always look at the full picture. While the ‘zero interest’ part is true, it is necessary to be mindful of processing fees and other hidden charges to ensure a seamless and rewarding shopping experience.
Card issuers may charge a nominal, one-time processing fee on EMIs, generally ranging from Rs 99 to Rs 299. Additionally, there’s GST on the interest component. The actual interest cost is offset by the merchant discount whereas the GST component, albeit small, is charged to the consumer’s card account. Though nominal, these charges are worth accounting for in advance.
Another crucial aspect is your available credit limit and credit utilisation. Any purchase converted into EMIs blocks the entire purchase amount against your credit limit until repaid completely.
For example, a Rs 50,000 purchase on a credit card with Rs 1 lakh credit limit will temporarily reduce your available limit to `50,000. As you pay your monthly EMIs, your limit is gradually released. Hence, be aware of your credit usage while opting for zero-cost EMI, as a high utilization can temporarily affect your credit score. Moreover, every timely EMI payment is a positive mark on your credit report.
Big-ticket purchases, like electronics, home decor, jewellery and many others, have become an integral part of festivities. And zero-cost EMIs are a smart ally in this quest for the much-awaited festive upgrade.