As the Diwali festival is around the corner, people are looking for the best shopping deals to make the most of the holiday sales season. Research on e-commerce platforms showed that retailers offer a plethora of deals, including no-cost equated monthly installments (EMIs), during the festive season to entice their potential customers. However, buyers should check if these Zero-cost EMIs have any hidden charges. It is important because people often fall for tempting offers and overspend.
What Are No-Cost EMI
If you want to buy a refrigerator, television, or washing machine but don't want to pay the full amount upfront, no-cost EMI might seem an attractive option. Vendors collaborate with banks and non-banking financial companies (NBFCs) to provide consumers with no-cost EMIs.
You have to choose from various EMI plans to avail of an EMI offer. You can select a payment plan from three to 24 months. The bank or NBFC pays the entire amount to the vendor, and the buyer deposits a down payment at the checkout to buy the product.
Hidden Cost of No-Cost EMIs
Online shopping platforms offer different discounts on the same product. But investors might forgo the discounts when opting for No-Cost EMIs. So, that could be the hidden cost.
When you opt for a zero-cost EMI, the amount saved by not offering you the platform's discount is sent to the vendor, so when you opt for a no-cost EMI, you can't avail discount on the product. For example, suppose you are buying a mobile phone, the MRP is Rs 16,000, and after the discount, it is Rs 14,000. So if you do not avail of the No-cost EMI, you will directly get the discounted phone for Rs 14,000, but if you avail of no-cost EMI, you will be paying Rs 4,000 as a down payment and Rs 3,000 for four months as EMIs.
Processing Charges
The second hidden cost can be processing charges. When you process the loan through your NBFC or a credit card, there will be a processing charge, which might seem nominal but increases the total price paid for the product.
GST On Interest
Although the interest on the product is not paid by you, in the case of no-cost EMIs, banks will pay the interest on your behalf. Although interestingly, the Goods and Services Tax (GST) levied by the government on the services of banks will land on your credit card bill. Therefore, it is one of the major costs to consider while availing of a no-cost EMI.
If You Miss The EMI Payment
During the EMI period, the bank earns only the processing charges. But if you miss the EMI payment, the bank will charge a hefty late fee, usually ranging from 1 to 2 per cent on the EMI, which you have to pay the following month. It will also decrease your credit score. So it is a major risk to watch out for when opting for a no-cost EMI offer.
