No-cost EMIs during festive time: Are they good or bad?

Festival season is upon us. In a couple of weeks, India begins a two-month-long celebratory time starting with Ganesh Chaturthi, then Onam, Navratri, Dussehra/Vijayadashami, and Diwali/Deepavali—from the end of August to October. And with these come online offers and no-cost EMIs. So, are they good for you?

With e-commerce majors like Amazon, Flipkart, Meesho, Myntra and the like offering you some eye-catching offers, temptations are natural to set in. More often than not, big-ticket purchases also have some EMI offers attached to them.

Among them are the seemingly harmless no-cost EMIs that promise you respite from interest rates, and thereby a small portion of retail guilt.

But are these Equated Monthly Instalment schemes really working out for you?

What are no-cost EMI schemes?

No-cost EMI schemes have even started popping up on quick commerce platforms such as Swiggy Instamart and Blinkit. What they essentially do is let you make more expensive purchases without shelling out the “extra interest”.

E-commerce platforms and big-ticket retailers bring these EMI schemes to you, the customer, by partnering with banks (HDFC Bank, ICICI Bank, Kotak, Federal Bank, SBI, and the like) and non-banking financial companies (such as Bajaj Finserv) to lift overall spending.

But as a customer, it is always good to read the fine print. Like they say in mutual fund ads: “Mutual fund investments are subject to market risks; read all scheme-related documents carefully.” Except the risk here is not from the market, but from people’s “out of sight, out of mind” mentality with invisible debt.

Imagine you are buying a laptop. In a no-cost EMI play, the product cost is divided into monthly instalments. If the laptop costs Rs 51,990 on say, Amazon, then your monthly no-cost EMI comes to around Rs 8,665 per month for the 6-month plan.

Multiply the monthly cost by the number of months, and it equals the product price. That’s your no-cost EMI. But what about “hidden charges”?

Yes, for no-cost EMIs, there is usually a hidden processing fee. For SBI, it is Rs 269, HDFC charges you Rs 299, ICICI Bank and Axis Bank charge you Rs 199, and so on, on Amazon as of today.

So, over months—and some, years—you managed to maintain a decent credit score and sufficient card limit, and there is still a processing fee?

Moreover, this processing fee is subject to GST (depending on the bank)—for Amazon and Flipkart, GST is usually included. And if you miss even a single EMI, late fees and penalties are added on. Then there is interest and GST on those fees. And the damage to your credit score is the icing on the cake.

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But isn’t no-cost EMI saving me money? Is it really? Usually, the interest you saved is factored into the product. Do check official websites and even your local stores… they might give you a better deal if you pay the full amount—some even get a 10 per cent discount. Plus, there won’t be the 1-2 per cent processing fees and GST on that fee.

But the biggest thing you might face is the true hidden danger of no-cost EMIs. It increases impulse purchases, and you overextend your finances—and that’s how you end up in a debt cycle.

It’s a tricky place. EMIs, if they exceed 30 per cent of your overall credit limit, can negatively impact your credit score. If you finally have the money to close the cycle of EMIs, foreclosure fees may apply.

Moreover, when you apply for a no-cost EMI—or any EMI—plan, your credit limit to the tune of that purchase is blocked in full. This means that Rs 51,990 will be shown as utilised credit even if your monthly EMI is Rs 8,665 for the laptop you bought from Amazon or Flipkart, for example.

This might become an issue for any other loans you might need during the tenure of the EMI.

Go for EMIs only after properly checking all the terms and “hidden charges”. Do the math, and compare it with the savings you get from a full cash purchase—at times, a personal loan might become cheaper. Finance gurus caution against using EMIs to buy things that are not essential. You might be better off saving the money for 6 months and then buying it in one go, if the purchase can wait.

This article is for information purposes only and is not intended to be any form of investment advertisement, investment advice, or investment information. The fulfilment and subsequent responsibility of offers and products mentioned in the article belong to the product service provider, be it a bank, NBFC, or an online/offline retailer or seller.

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