As Diwali approaches, many people contemplate on making big purchases. The availability of personal loans, unsecured credit cards, and fintech solutions that provide ‘buy now, pay later choices has increased people’s accessibility in making big festive purchases.
A popular option is the no-cost equated monthly instalment (EMI) plan that allows consumers to make large purchases without paying any interest. However, before plunging in, it is crucial to assess the advantages and disadvantages of such options.
Is No-Cost EMI Worth It?
A no-cost EMI is a payment scheme that allows buyers to divide the cost of a product or service into manageable monthly instalments without incurring any interest expenses. In essence, you are only covering the product’s total price, devoid of any extra charges.
However, experts advice reading the fine print before signing up for a no-cost EMI offer.
Says Amol Joshi, founder, PlanRupee Investment Services: “Consumers must thoroughly evaluate a no-cost EMI offer by calculating the total cost, including all EMIs, upfront payments, and any additional fees. Often, the true value of such offers is diminished by hidden charges. Remember, while a no-cost EMI may seem appealing, it’s important to scrutinise all aspects of the deal and prioritise only the essential purchases, especially during the festive season.”
Advantages And Disadvantages Of No-Cost EMI
Here are the advantages and disadvantages of no-cost EMI options.
Advantages
1. Budget-Friendly Payments: No-cost EMI allows consumers to break down large purchases into manageable monthly payments, making it easier to afford high-value items.
2. No Interest Charges: If managed well, shoppers can enjoy the benefits of spreading out the costs without paying any additional fees as interest.
3. Flexibility: Many retailers offer diverse options, making it easier for consumers to find products suited to their needs.
Disadvantages
1. Hidden Fees: Retailers may impose processing fees or other hidden expenses, which might offset the advantages of a no-cost EMI plan. It is essential to review the terms and conditions before taking a no-cost EMI plan.
2. Higher Product Prices: Products with free extended warranties can have high expenses. Before making a purchase, consumers should weigh the price of the product at multiple sites for comparison.
3. Risk Of Overspending: The urge of cheap payments may cause people to spend more than they can afford. This could jeopardise their budget and put their finances in danger in the long run.
4. Impact On Credit Score: Missing out on an EMI payment can negatively affect your credit score, making it tougher for you to secure favourable loan terms in the future.
What Should Shoppers Do?
Gaurav Goel, a Securities and Exchange Board of India-registered investment advisor (Sebi-RIA) emphasises on the importance of exercising caution on using no-cost EMI options to splurge on festive shopping.
“The festive season is usually a high purchase time for consumers in India, with aggressive promotions of no-cost loans, which often lack true declarations of hidden costs. Buyers should carefully read the terms and conditions before signing up for such loans, and if duped, they should register complaints with consumer forums. The maxim ‘buyers beware’ becomes particularly relevant during this period,” he says.
