Are no-cost EMIs worth it? Key considerations before you opt in

Compare the EMI price with the regular cash price to ensure you're not overpaying on your no-cost EMI

No-cost equated monthly instalments (EMIs) are popular among consumers looking to make big-ticket purchases without the burden of upfront payments or interest charges. Are they truly as beneficial as they appear?

What is a no-cost EMI

It is a payment option where you can make purchases and repay in instalments without additional interest charges.

Suppose you want to buy a TV worth Rs 1,00,000 and opt for a no-cost EMI plan for 12 months. Without no-cost EMI, let’s say the interest rate is 12 per cent.

Breakdown of no-cost EMI

Product price: Rs 1,00,000

No-cost EMI term: 12 months

Rs 12,000 interest

Total cost without no-cost EMI: Rs 1,12,000

How it works

In a no-cost EMI plan, you would ideally pay the same amount each month for the duration of the plan and without additional interest charges.

Monthly EMI: Rs 1,00,000 ÷ 12 = Rs 8,333.33

So, over 12 months, you would pay:

Total repayment with no-cost EMI Option: Rs 8,333.33 × 12 = Rs 1,00,000

This means you’re paying exactly Rs 1,00,000 for the TV, with no extra costs or interest.

You’re paying the exact price of the TV spread over 12 months. However, it is important to note that while interest is not directly charged, there might be other fees or adjustments involved in the overall cost calculation.

“No-cost EMI is a financing option where you can pay for a product in equated monthly instalments (EMIs) without paying any additional interest. This payment scheme is designed to make purchases more affordable by spreading the cost over a period, typically ranging from 3 to 12 months and even 24 months for some products. Opting for No Cost EMI can be beneficial if you want to manage cash flow without paying extra. It’s particularly attractive for big-ticket items like electronics or appliances,” said Adhil Shetty, chief executive officer of Bankbazaar.

Things to keep in mind when considering a no-cost EMI

Eligibility criteria: Requirements for the no-cost EMI may include credit score thresholds or specific card types.

Product price comparison: Compare the EMI price with the regular cash price to ensure you're not overpaying.

Tenure options: Consider the different tenure periods available and choose one that fits your budget.

Prepayment penalties: Some no-cost EMI plans may impose penalties for early repayment. If you anticipate having the funds to pay off the EMI early, check the terms to avoid unexpected charges

Processing fees: Look out for any upfront or hidden processing fees.

Credit score effect: Regular, timely payments can positively impact your credit score, while missed payments can harm it.

Terms and conditions: Carefully read all terms and conditions before agreeing to the EMI plan.