Image Source: Times of India
As the festive seasons approach, shoppers eagerly await Flipkart’s Big Billion Days and Amazon’s Great Indian Festival. Both platforms heavily promote the no-cost EMI option, enticing buyers to purchase expensive electronics, appliances, and gadgets without interest. However, what appears as a convenient, interest-free way to pay might actually increase the overall cost in subtle ways. Unpacking the hidden charges and potential financial pitfalls of no-cost EMI schemes is essential for consumers looking to make informed purchases.
Understanding The No-Cost EMI Illusion
No-cost EMI schemes promise buyers the ability to pay for products in fixed monthly installments without additional interest or hidden charges. This concept sounds highly attractive, as it allows spreading out large payments over many months while seemingly paying no extra amount.
Key Points on No-Cost EMI Realities
The ‘no-cost’ tag often masks hidden costs such as processing fees charged by banks, which can range between 1% to 3% of the product price.
Goods and Services Tax (GST) is applied not only on the product price but also on these processing fees, adding roughly 18% GST, which escalates your payable amount.
Sellers might adjust the listed product price upwards to cover the interest component, effectively embedding the cost within the MRP (Maximum Retail Price).
Cashback offers or credit card rewards frequently do not apply when opting for no-cost EMI, robbing buyers of possible savings.
If buyers choose to extend EMI tenure beyond the no-cost period, interest gets applied, significantly increasing total payment.
Banks and financial institutions sometimes impose a nominal processing fee upfront or with monthly installments, which the consumer foots.
How No-Cost EMI Can Inflate Your Spending
Many customers in the festive rush perceive no-cost EMIs as affordable payment options and end up purchasing items they may not urgently need. The perception of lower monthly payments tricks consumers into spending beyond their budget, which gradually depletes their overall savings.
Below Are Common Ways This EMI Model Can Increase Your Cost
Some products on Flipkart and Amazon listed under no-cost EMI are actually priced higher than usual to compensate for interest costs.
Processing fees and GST are often not openly disclosed or buried in fine print, leading to unexpected surcharge on bills.
The cashback or instant discount normally available on full upfront payment is forfeited if buyers choose EMI.
Consumers unknowingly subject themselves to longer credit lock-in periods as EMIs block portions of their credit limits, limiting further spending flexibility.
Any missed EMI payments can invite hefty late fees, making the loan costlier.
Financial literacy gaps lead many to misunderstand the difference between zero interest and zero cost, resulting in overspending.
Why The Reserve Bank of India Warns Consumers
The Reserve Bank of India (RBI) has cautioned e-commerce platforms and lenders to maintain transparency regarding no-cost EMI schemes to protect consumers from misleading pricing and unfair charges. They highlight the importance of reading terms and conditions carefully before committing to such loan offers.
Tips For Smart Shopping Using No-Cost EMI
Compare the total cost of the product while paying upfront versus the EMI price including all processing fees and GST.
Verify if your credit card or payment method’s cashback or reward points apply when using EMI options.
Be cautious of products priced higher during sales when no-cost EMI is offered; look for historical price trends.
Read the fine print about processing fees, minimum tenure, and interest applicability if EMI payments are delayed or extended.
Consider your overall credit utilization ratio before taking a no-cost EMI as it affects your credit score and future borrowing capacity.
Conclusion: No-Cost EMI Is Not Always Free
While no-cost EMIs can make big-ticket shopping more manageable and spread out expenses, they are not always free from hidden costs. Consumers should exercise vigilance to avoid being misled by the attractive marketing of zero-interest plans on Flipkart and Amazon. Understanding the embedded fees, tax implications, and long-term impact on finances helps shoppers make wiser decisions during festive sales and beyond.
Sources: Hindustan Times, Economic Times, Moneycontrol, Paisabazaar, Olyv Blogs, Bankbazaar, YouTube reviews on EMI schemes
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