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The e-commerce giants have made it easier than ever for people to buy electronics and consumer durables with their ‘no-cost EMI’ schemes. The idea is that you can pay the product price over months at your convenience, and there is no EMI rate of interest being charged, unlike a conventional bank loan. But, are ‘no-cost EMIs’ really free?

How does the ‘Zero Interest EMI’ Work?

Zero interest EMI lets you make affordable purchases of products, spaced out over months; very similar to loan EMIs. The product price is converted to a series of Equated Monthly Installments with no stated extra charges.

One way the actual price is higher is when the discount is turned into the interest to be paid to the financial institution.

E-commerce retailers generally offer deep discounts. Suppose there is a tablet that sells for Rs 20,000 on MRP, the discount offered may bring it down to Rs 15,000. People may buy it at the discounted price if they can afford it or they can choose the no-cost EMI. Here, people have to buy it at full price and then pay, perhaps, Rs 1000 per month for 20 months that adds up to Rs 20,000.

So, the cost is the discount you would have been able to avail. The EMI rate hasn’t been specified, but the interest in the above example is Rs 5000.

There is another way in which the zero cost EMI system works. If an item is available at Rs 15,000 taking the EMI option will push up the price to Rs 20,000. The extra Rs 5000 is the interest, and the EMI is paid off over months. 

Here, the cost is the premium placed over the MRP. It is indirectly a loan EMI that you pay off gradually.

If you are curious about knowing more, check out the CRED EMI calculator.

Benefits of the No-Cost EMI Option

  • When you don’t have enough money to buy something that costs a lot, the EMI system is convenient.
  • It’s easier to make bulk purchases when you can pay over an extended period of time.
  • If you want to build your credit history and credit score, taking the ‘zero interest’ EMI works, especially if you use a credit card.
  • Some items never have a low price due to the demand-supply gap, so the no-cost EMI option is not a loss.

Disadvantages of No-Cost EMI Option

  • Though there is no stated EMI rate, the effective interest being paid will be very high. You can feed the details into an online EMI calculator to check how much.  
  • The return on investment is not good. The price you pay is much higher in the long run.
  • The real cost is not visible upfront, and you may think you are getting the discount and EMI, but you have to read the breakup and fine print.
  • These ‘no-cost’ loan EMIs can saturate your credit card limit when they are charged on it. Using CRED for your credit card bill management simplifies things.

In conclusion, you should go through the cost breakup when you see an EMI offer on something you want to purchase. Once you have evaluated whether it’s a good enough deal to offset the drawbacks, you can manage your debt smartly.