What are the no-cost EMI hidden charges in instalment packages?

No-cost EMIs (Equated Monthly Instalments) are a popular way to manage finances and make larger purchases more affordable. However, the term “no-cost” can be misleading. While you may avoid traditional interest charges, there can be hidden fees associated with no-cost EMI plans. Understanding these no-cost EMI hidden charges can help you make informed decisions and avoid surprises when budgeting for your purchases.

In this blog post, we will break down the most common no-cost EMI hidden charges. We will also explain how they impact your total payment and offer tips to ensure you’re getting the best deal possible. Apart from these, we will also explore alternative financing options to consider so you can choose the payment plan that best suits your needs.

10 reasons why no-cost EMIs are not-so-transparent

While no-cost EMIs present a tempting way to snag that big-ticket item without a hefty upfront cost, the “no-cost” label often masks additional fees that can add up. Let’s delve into the most prevalent no-cost EMI hidden charges lurking within your plans:

  1. Processing fees: This is one of the most common no-cost EMI hidden charges. Banks or lenders often charge a one-time processing fee for setting up the EMI plan. This fee can range from a few hundred rupees to a percentage of the total purchase price. Be sure to factor this fee into your overall cost calculation when evaluating the “no-cost” aspect of the EMI plan
  2. Pre-closure charges:  Have you ever got the urge to pay off your EMIs early? Think twice before doing so with a no-cost EMI plan. Some lenders penalise early repayment with pre-closure charges. These no-cost EMI hidden charges can be a percentage of the outstanding balance, essentially negating the “no-cost” advantage if you plan to settle the loan early
  3. GST on processing fee and deemed interest: While the plan might advertise no interest, there’s often an underlying interest cost built into the product price or borne by the merchant. This “deemed interest” can be subject to Goods and Services Tax (GST). Even though you’re not directly charged interest, you might unknowingly end up paying GST on these no-cost EMI hidden charges, adding to the overall EMI amount
  4. Limited discounts and offers: No-cost EMIs often come at the expense of other promotional offers or discounts that might be available on a full upfront payment. Carefully compare the EMI price with the price offered for a full upfront payment. Always factor in any potential discounts you might be missing out on by opting for the EMI route
  5. Early access fee:  Some platforms offering instant loan approvals for no-cost EMIs might charge an additional fee for “early access” to your credit limit. Be aware of such fees and ensure they are factored into your cost calculation

What are some common alternatives?

While no-cost EMIs may seem like an attractive financing option, they’re not the only game in town. Consider exploring alternative payment plans that might better suit your financial needs:

  1. Credit card EMI: Many credit card issuers offer EMI options with competitive interest rates and transparent fee structures. Compare these offerings with traditional no-cost EMIs to determine which option best meets your financial goals
  2. Personal loans: Depending on the interest rates and terms offered, a personal loan might be a more cost-effective solution for financing large purchases. Evaluate the total cost of borrowing across different financing avenues to make an informed decision
  3. Savings fund: If feasible, consider saving up for your purchase instead of relying on instalment plans. By avoiding debt altogether, you can sidestep the complexities of financing schemes and enjoy greater financial freedom

Stay informed with all no-cost EMI hidden charges

No-cost EMIs may seem like a convenient way to manage finances and afford big-ticket items, but the reality is far more nuanced. No-cost EMI hidden charges can significantly inflate the total cost of your purchase, undermining the purported benefits of interest-free instalments.

If you understand these hidden charges, compare offers diligently and explore alternative financing options, you can navigate the world of no-cost EMIs with confidence and financial savvy. It is important to note that knowledge is power – arm yourself accordingly to make informed decisions and secure the best deal possible for your next purchase.

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