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No Cost EMI detailed guide-7 ways to demystify the process before applying in any online purchase over amazon

No Cost EMI is a recently introduced concept by E-Commerce companies to tap the customers. Generally, these days every online shopping portal attracts their customer with this concept of discount. Other than this, they also offer various other types of lucrative discount offers like bank discounts, discounts for using Credit Card for purchasing and exchange offers.

What is no cost EMI?

This concept was initially introduced by Flipkart in the online stores, and this concept is now promoted by all the major giants like Amazon and Flipkart on all its products. This option allows the customer to purchase expensive goods online without paying the whole amount upfront. Here you can pay the amount in easy and equal monthly instalments.

This No Cost EMI is actually the same EMI option which we perceive in general, but with some additional discounts given upfront by the agency to attract the customers. An equated monthly instalment (EMI) is a tool by which we can pay the loan in its entirety with fixed small instalments over a period of time. EMI concept is equally applicable to both the Principal and the interest amounts so that the total amount payable by the borrower gets paid in monthly instalments. Through this option, you don’t have to pay the entire amount of your purchase up front, instead, you can pay the amount in the number of months selected by you while making the purchase.

No Cost EMI Explained

We know a bit about EMI, but as far as ‘No Cost EMI’ is concerned, we people have less knowledge. As its name suggests, we assume that here also we can make the payment in equal instalments but without any interest as it was in EMI. But wait, this assumption is not true in its sense and is a half-truth. Because the central bank or RBI which actually works as guardian and supervisor of all banks clarifies that there is no such concept of Loan without interest or of zero per cent interest. This interest is not showed to customers and passed to them in the form of processing fees.

As the bank clearly denied this concept in actuality, so this interest can be passed to us as a customer in two ways by the companies. The first one is to add this interest amount in the cost of the item even before displaying it to customers, or else secondly, to waive off the discount for which the customer is liable and credit the same to the banks or financial institutions upfront.

How no-cost EMI works?

As the central bank already clarified about this concept that there is no method by which any bank should offer a loan to the customer without interest. But if you see Amazon and Flipkart, you will see that both these portals are providing ‘No Cost EMI’, so how they are going for it?

Actually, they are offering a discount equal to the interest liable to be charged by the bank or financial institutions. So, these portals transfer this discount amount to these financial institutions beforehand. If you are not selecting this option and going for a simple EMI option over credit cards or debit cards, in that case, you will be charged with interest ranging from 12 to 15% depending on the banks. In this case, the interest charges will be transferred to the institutions whenever you are debited with an amount equal to the EMI amount. Hope it made you understand this concept, if not let’s further discuss it with an example:

Suppose you as a customer, want to buy any product from these online portals with a price tag of Rs 50,000:-

So if you are opting for a three or six months EMI plan with the credit cards, and your credit card issuer agency is charging 15% over the amount as interest. So, you have to pay Rs 7500 as interest. But as you are paying all the amount upfront, so you will get this product in Rs 42500 because the 7500 is discounted to you for this upfront payment and the same will be transferred to the financial institutions. But if you choose to pay through No, cost EMI option, that case, you will be paying the whole 50000 in six monthly instalments. Here, the interest amount will be paid to the banks and the rest amount to the seller.

Myth behind No Cost EMI

No Cost EMI is a popular and lucrative way to attract customers to make purchases, where discounts offered is generally equal to the interest amount to be paid. In the above example, the interest charged is at 15%, so the interest to be paid is 7500, and the company will offer you a discount of 7500 upfront. Hence this method is called No cost EMI because of the first reason explained above, as they are charging no extra cost for the process. Here these E-Commerce sites are paying an amount equal to the interest amount as a discount upfront to the customer.

No cost EMI on Credit and Debit card

Nowadays, customers are using this option of paying the price of the product with credit and debit cards in large numbers. As we have already discussed that amount will be paid upfront in case of ‘No Cost EMI’, so how this option works when you are making payments using Plastic Money like Credit Cards and Debit Cards?

No Cost EMI against Credit Cards

In the case of Credit Cards, the total amount will be paid beforehand to the seller and we will understand it better with the above-discussed example only. Here full amount i.e 50000 will be blocked against your credit card, and if you have a total limit of the card is 2 Lakh then 1,50000 will only be available to you after this purchase. Your limit will be restored to the full amount once you paid all the due instalments timely. Every month, your credit card limit will be increased by the amount equal to the EMI amount and it will be restored to full after completion of EMI tenure.

No Cost EMI against Debit Cards

If you are planning to pay with your Debit cards, in that case, the whole amount (50000) will be debited from your account once and again credited back to your account in some days. After this, your transactional amount will be converted to EMI by your bank. As, in this case, you will be debited with the full amount once before restoration, so you must have that amount in your bank account.

Advantages of no cost EMI

There must be some reasons why online merchants are offering no-cost EMI in tie-ups with major banks in the country. Below are the advantages or the reasons of offering no-cost EMI:

  1. You can buy expensive products without having enough amount with your bank account.
  2. You have an option to pay the amount of the product easily through small and affordable monthly instalments.
  3. Paying with small instalments will improve your Personal Finance.
  4. You have the liberty to choose your payback period by selecting the tenure of your EMI.

Disadvantages of no-cost EMI

Paying the amount in equal monthly instalments is an easy and lucrative method, is it not? But it also has some of its disadvantages:

  1. Sometimes, you are subjected to a processing fee in case of opting for EMI options.
  2. The total cost of the product can be higher sometimes when compared with the non-EMI option.
  3. You will be charged with GST applicable on every instalment which makes the cost further costly.
  4. The refund option in the EMI case is also not so easy.
  5. You can be subjected to the processing fees if any, even if you have returned the product or cancelled the order.
  6. Final and the biggest disadvantages of an EMI option is that it actually trap in a way for customers to buy costly products which can be avoided sometimes.
  7. Unnecessary Spending is the one concept associated with the usage of Plastic Money and so with EMI, which affect your Personal Finance and Budgeting very badly.

Whether to Go for no cost EMI or not?

It is very basic that before going for any purchase, you should have enough balance in your bank account. But with the arrival of this EMI option, you can compromise with this front. But then also, if in any circumstances you failed to pay timely, you will be charged heavily by the banks. So, it’s better that you should have enough balance or at least finance planning so that it will make you pay the instalments timely. If you can pay the premium timely, it is advisable to go for EMI and if not, you should avoid it.

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