What Is No Cost EMI On Credit Cards?

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Capitalism and consumerism are some of the most important driving forces of today’s world. And in our bid to ‘buy more’ with less money, humans have come up with some truly innovative solutions. One such financial solution that has gained popularity in recent times is the “No Cost EMI” on credit cards. It is a financing option provided by credit card DSA that allows customers to buy products without incurring any additional interest charges and is available on most e-commerce platforms like Amazon, Flipkart, Myntra, etc.

In this blog post, we’ll look at what a No Cost EMI scheme is, how it works, its advantages and disadvantages, and what to look out for when suggesting your customers to opt for it.

What Is No Cost EMI?

No Cost EMI is a financing facility provided by credit card issuers that allows users to pay for their purchases in equated monthly installments (EMIs) without incurring any additional interest charges. In regular credit card transactions, the bank levies interest on the total amount payable over the chosen tenure if the cardholder opts for EMI. However, with Cost EMI, the interest cost is paid for by the merchant or retailer offering the product, not the consumer.

In fact, there are two types of No Cost EMI:

  • Equating Discount To Interest: In this type, all discounts on products are removed for people who choose to pay with No Cost EMI to make up for the interest that needs to be paid.

  • Installments Having Interest Built-In: In this type, the monthly installment that the buyer will have to pay includes the cost of interest as well.

Thus, it is pretty evident that a zero percent interest rate doesn’t exist; the interest cost is always paid for in other ways. Even so, No Cost EMIs are still popular.

How Does No Cost EMI Work?

As mentioned above, when a customer makes a purchase using a No Cost EMI option, the merchant or retailer takes on the interest cost instead of the consumer. Essentially, the retailer or merchant and the issuer of the credit card enter into an agreement in which the retailer pays a processing fee or commission to the bank or financial institution to offer this EMI facility to the customer without any interest charges. Thus, the cost of interest is essentially absorbed by the retailer, who may choose to regain this cost by offering the product at a slightly higher price. This is because, as per RBI guidelines, there is no actual concept of zero percent interest rates.

Additionally, the tenure of the No Cost EMI is often predetermined, usually between three to 24 months, depending on the terms set by the credit card issuer and the retailer. During this time and until the entire EMI tenure is completed, the customer’s credit limit is reduced by the purchase amount. Moreover, it’s important to note that the No Cost EMI option is only available for certain high-value products or transactions, and may not be applicable to all purchases made using a credit card.

Advantages Of No Cost EMI

There are quite a few benefits that come with purchasing products using the No Cost EMI scheme, including:

  • Interest-Free Purchases: The most significant advantage of No Cost EMI is that consumers can pay off the cost of expensive items over several months without incurring any interest. This makes high-value purchases more affordable and manageable, especially for individuals on a tight budget.

  • Minimal Documentation: Unlike traditional loans or financing options, No Cost EMI on credit cards usually requires minimal documentation. This simplifies the purchasing process and makes it more convenient for consumers.

  • Easy Approval: For customers who already possess a credit card with a sufficient credit limit, availing of the No Cost EMI option is relatively easy. There is no need to go through the hassle of applying for a separate loan or credit facility.

  • No Prepayment Penalties: Some credit card issuers allow customers to prepay the EMI amount without any additional charges. This flexibility allows consumers to clear their debt ahead of schedule if they have the financial means to do so.

Disadvantages Of No Cost EMI

As great as the advantages of the No Cost EMI scheme are, it comes with its own share of disadvantages as well. Some of these disadvantages include:

  • Slightly Higher Product Prices: While the EMI is interest-free for the customer, the cost of interest is often factored into the product price by the retailer. As a result, the item’s cost may be marginally higher when purchased through a No Cost EMI option compared to paying in full upfront.

  • Limited Availability: No Cost EMI is typically offered only on select products or transactions. It would not be available for all purchases, especially for lower-priced items.

  • Potential Impulse Buying: No Cost EMI might encourage some consumers to make impulsive purchases, leading to unnecessary debt if they do not plan their expenses prudently.

  • Default Penalties: If the customer misses or defaults on an EMI payment, they may incur penalties, including interest charges, which will negate the no-cost benefit.

What To Look Out For While Choosing No Cost EMI

There are a few things to keep in mind while opting for a No Cost EMI purchase, including:

  • Processing Fee: While No Cost EMI is an attractive scheme offered by many banks and financial institutions, it often comes with a processing fee of INR 500, which may not be mentioned in the offer and therefore is unknown to the consumer.

  • Temporary Decline Of Credit Limit: Users with credit scores less than 700 cannot avail of No Cost EMI. Moreover, users must know the tenure of repayment and have cash available for the monthly payments. Failure to repay on time would affect credit availability.

  • Possible Debt Trap: The easy financing options have made compulsive consumers of us all. Therefore, it is important to keep your total EMI payments at less than 50% of your income, lest you fall into a debt trap.

  • Timely Repayment: Repayment has to be done on time to ensure that credit scores remain high (or increase if you have a low one). Late fee penalties may also be applied for delayed repayment.

To conclude, No Cost EMI on credit cards is an attractive financing option that allows users to spread their expenses over manageable installments without incurring interest charges that has made expensive purchases more accessible and affordable for consumers.

However, it is essential for consumers to exercise caution and understand the terms and conditions associated with the No Cost EMI facility. Proper budgeting and financial planning help ensure that EMI payments are made on time, thereby avoiding any potential penalties or additional interest charges.

Andromeda Loans is one such financing company that offers credit cards with the No Cost EMI option. With our focus on digital technology and marketing trends, we ensure that all the financial needs of our customers are taken care of. Head to our website to learn more!