What is No-cost emi? Any hidden charges/process?

[superczar]

It is not really that black and white. It some scenarios you might end up paying 9-20% more and the article below gives a good idea.

How a Zero Cost EMI Actually Costs 9% - Capitalmind

You've heard of the zero-cost EMI, no? You have to buy something, and instead of paying for it now, you just pay for it over 6 months. That's awesome, correct? But it turns out there's something more sinister now. From a zero cost EMI, you are likely to be paying…

www.capitalmind.in

I opted for a no-cost EMI only once because there was a discount available for no-cost EMI and not for upfront purchase. At the end of it, for a 10k product with 10% discount, I ended up saving around 250 bucks (for a 3-month EMI) which was probably still okay considering the alternative was a "no discount".

It’s pretty much black and white unless you are buying a really small value item (to the extent that the 199/- processing fee makes a difference)
The cost you bear excluding that is 18% on the interest component (which is at 14%)

That translates to a roi of 2.5% which is lower than the roi on the same money sitting even in a basic savings bank account.

Note that I am not saying that people should buy things that they can’t buy upfront just because it’s available on emi (that’s the target Market for such schemes)

But if it’s something you planned to buy anyway (and thus presumably could comfortably afford), you are always financially better off choosing the higher roi (to you) option I.e this no cost emi, if available.

There are other variables that come into play too though.
For example In some cases, you may be able to get a much higher card points return on a direct purchase. But I’m leaving that out of purview for now

However, ICICI failed to remove the EMI for several months from my CIBIL report and I had to eventually file a complaint with the RBI ombudsman to get the inactive EMI removed, so in the end it was not worth the hassle.

Was it showing up as unpaid / delayed payments LoC on the Credit report? Or was it just sitting there as a no delay, zero outstanding item.
I presume it was the latter.
If it was indeed the latter then you didn’t need to do anything from your end

 

[smnrock]

When I bought OLED tv, opting for no cost EMI given some extra 7000 discount(cashback). Paying upfront didn't give any discount. Faced the same recently for dishwasher bought by a family member. Basically they call this as manufacturer discount. But never faced any extra entries related to this in cibil or other similar reports like experian.

 

[Demon_Ryu]

There is no such thing as no cost
You have to bear Proc fees + gst and gst on int amount

 

[ishanjain28]

> For example In some cases, you may be able to get a much higher card points return on a direct purchase. But I’m leaving that out of purview for now

something to keep in mind. ICICI/SBI in my experience, do not offer any CC points on merchant EMI transactions.

 

[iPwnz]

Are there any EMI's which should be avoided? Or are all 0% EMI's the same? I'm thinking of getting a bike (Hero Xpulse) if the total price is reasonable or I'll get used.

 

[superczar]

> For example In some cases, you may be able to get a much higher card points return on a direct purchase. But I’m leaving that out of purview for now

something to keep in mind. ICICI/SBI in my experience, do not offer any CC points on merchant EMI transactions.

That is certainly something worth checking.
AFAIK, Infinia/DCB did not add 10x rewards and same was the case with amazon icici/ axis fk 5% some time ago
However, from what I recall, it was added later - was definitely the case early last Year

I haven’t brought anything on no cost EMI recently so can’t say for sure - but it keeps changing and can vary from 1 bank / site to another.

The key is to make sure that all the extras (cash back/accelerated rewards etc) are the same for the chosen method - and if yes then choose the no cost EMI

 

[ssslayer]

So we were looking for a tv and the model we chose has some cashbacks with credit card full swipe and Debit card no-cost emi. Both of these ways, the cashback remains same and they said will be credited in 3-4 months.
I never bought anything with no-cost emi. Usually emi means, they will add processing fee+gst initially and then convert the amount to emi's in certain number of months along with interest.
But with no-cost emi, one store said only 299 processing fee, another said 399+gst blah blah...

Can someone tell me if there are any hidden charges? Is this a reliable process or should I stay away from it?

Note: This question might have been asked by someone else in the past, but in my case store people are confusing us with cash back vs interest on emi and we need to clear this confusion before purchase.

I recently bought a Samsung AC.
The funny thing is that after all the discounts and everything the total price was coming to about 47000.
Tata Croma said that if I use credit card and pay via EMI then the total will work out to be 45000 (bank is giving 2000 as discount).
I said what about interest fee - Croma says no interest fee, only processing (200 or so) will be applicable.

I asked that I am willing to pay 45000 upfront instead of EMI, but looks like Banks have promo schemes for general public not for specific people like me.
What does everyone get out of it? Lower price, more affordability = more sales volumes.
Banks also bank on the fact that someone taking EMI for 45000 has got a greater chance of defaulting - thus making money out of the penalties.

 

[iPwnz]

Banks also bank on the fact that someone taking EMI for 45000 has got a greater chance of defaulting - thus making money out of the penalties.

Damn just how many people default their EMI to make it feasible.

 

[Mr.J]

Damn just how many people default their EMI to make it feasible.

Many more than you'd think. I know some 'geniuses' who kept paying minimum dues for months and racking up interest.

 

[iPwnz]

I can't say the process is ethical but that's a very cunning move.
BTW if I'm already paying loan EMI, can I take another loan EMI for other things?

 

[Mr.J]

Yes

 

[t3chg33k]

It’s pretty much black and white unless you are buying a really small value item (to the extent that the 199/- processing fee makes a difference)
The cost you bear excluding that is 18% on the interest component (which is at 14%)

That translates to a roi of 2.5% which is lower than the roi on the same money sitting even in a basic savings bank account.

Note that I am not saying that people should buy things that they can’t buy upfront just because it’s available on emi (that’s the target Market for such schemes)

But if it’s something you planned to buy anyway (and thus presumably could comfortably afford), you are always financially better off choosing the higher roi (to you) option I.e this no cost emi, if available.

There are other variables that come into play too though.
For example In some cases, you may be able to get a much higher card points return on a direct purchase. But I’m leaving that out of purview for now


Was it showing up as unpaid / delayed payments LoC on the Credit report? Or was it just sitting there as a no delay, zero outstanding item.
I presume it was the latter.
If it was indeed the latter then you didn’t need to do anything from your end

I just went through the EMI statement for the no-cost EMI that I had availed on my debit card. For a 10k purchase with 10% discount, I paid 9.35k for a 3-month EMI. An upfront discount would have made it 9k. The cost in this case was 350 bucks over 3 months (interest rate was higher for 6 months EMI).

Is there a fixed rate instrument that would have earned me more than 350 bucks on the unamortized principal over 3 months? Absolutely not. Back of the envelope calculations indicate that having 9k in the account for the 1st month, 6k in the 2nd month, 3k in the 3rd month would have earned around 60 bucks back over 3 months at 4% savings interest rate. Thus, the no-cost EMI still was effectively nearly 3% more expensive that paying upfront.

Only large purchases make the no-cost EMIs worthwhile, not to say that various card cashbacks are not credited for EMIs. An upfront discount is still better for most purchases.

With respect to the credit report, I know that a zero OS EMI doesn't have an impact but I have double-digit credit accounts due to various credit cards (some were closed but never updated in the report). One of the bank's analytics of the report itself indicated that the large number of open accounts was having an impact on the score, albeit a low one.

Edit: I had not added the interest + GST for the 2nd and 3rd installments as I had only checked the first statement, so total outgo under the no-cost EMI was actually close to 500 bucks.

 

[superczar]

I just went through the EMI statement for the no-cost EMI that I had availed on my debit card. For a 10k purchase with 10% discount, I paid 9.35k for a 3-month EMI. An upfront discount would have made it 9k. The cost in this case was 350 bucks over 3 months (interest rate was higher for 6 months EMI).

Is there a fixed rate instrument that would have earned me more than 350 bucks on the unamortized principal over 3 months? Absolutely not. Back of the envelope calculations indicate that having 9k in the account for the 1st month, 6k in the 2nd month, 3k in the 3rd month would have earned around 60 bucks back over 3 months at 4% savings interest rate. Thus, the no-cost EMI still was effectively nearly 3% more expensive that paying upfront.

Only large purchases make the no-cost EMIs worthwhile, not to say that various card cashbacks are not credited for EMIs. An upfront discount is still better for most purchases.

With respect to the credit report, I know that a zero OS EMI doesn't have an impact but I have double-digit credit accounts due to various credit cards (some were closed but never updated in the report). One of the bank's analytics of the report itself indicated that the large number of open accounts was having an impact on the score, albeit a low one.

The first line I had stated was a rider- "to the extent that the 199/- processing fee makes a difference)"

Of the 350/_ you paid, more than half of it is coming from that.

 

[t3chg33k]

The first line I had stated was a rider- "to the extent that the 199/- processing fee makes a difference)"

Of the 350/_ you paid, more than half of it is coming from that.

I updated my post as I looked at the first statement only which had the processing charge and the first interest installment with GST, so actually the total cost for the no-cost EMI in my case was closer to 500.

It was still good for me in terms of the fact that there was no discount available for upfront payment, but whenever upfront discounts are available, they are much more profitable.

 

[AINDRASIS_GUPTA]

I'd suggest avoid things like EMIs and always pay upfront with your purchases. If you're buying a car/vehicle, then EMIs make sense because automobiles depreciate slowly over time. But, when it comes to gadgets and other electronic consumable products, I always suggest people to avoid EMIs. If you're not comfortable paying the full payment upfront, then it's better to just wait, save up and then buy.

Some videos that inspired me to follow this non-EMI path that I'd suggest you to watch:

 

[superczar]

I updated my post as I looked at the first statement only which had the processing charge and the first interest installment with GST, so actually the total cost for the no-cost EMI in my case was closer to 500.

It was still good for me in terms of the fact that there was no discount available for upfront payment, but whenever upfront discounts are available, they are much more profitable.

obviously if an upfront discount is available on full payment then it is better - but then we aren't talking of a No cost EMI.

For the purpose of this discussion,
A) the option is between choosing a NCE where the applicable interest is discounted upfront - so that the sum total of EMIs = what you would have paid upfront
B) We are assuming that card points and other incidental gains are the same in both scenarios.

Fair so far?

Now all one needs to do is put the cashflows on an excel to compare - if i were to assume a nominal ROI of 4.5% on your funds, you will be better off by approx 1200 in the NCE option
Your inflexion point comes at an assumed rate of return of 2.5% on your funds - which I am sure all would agree is low and one can easily beat that even with a savings bank acct.. no?

 

[iPwnz]

While we are are it what bank has the most regular offers and rewards (if any) on credit card spending via EMI? For a product which costs 1 lac spending 1k (for example) more is very much worth it imo. Not for phones or gadgets BTW. I would never buy them on EMI.

 

[Ssreek]

I would like to point out something...Even in our scenario and similar to the iphone offers, these stores are giving good offers on no-cost EMI rather than full swipe. But everything is buried in t&c. It's our burden only.

 

[t3chg33k]

obviously if an upfront discount is available on full payment then it is better - but then we aren't talking of a No cost EMI.

For the purpose of this discussion,
A) the option is between choosing a NCE where the applicable interest is discounted upfront - so that the sum total of EMIs = what you would have paid upfront
B) We are assuming that card points and other incidental gains are the same in both scenarios.

Fair so far?

Now all one needs to do is put the cashflows on an excel to compare - if i were to assume a nominal ROI of 4.5% on your funds, you will be better off by approx 1200 in the NCE option
Your inflexion point comes at an assumed rate of return of 2.5% on your funds - which I am sure all would agree is low and one can easily beat that even with a savings bank acct.. no?

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The OP was about getting the same cashback being applied for Full Swipe and for NCE.

The T&C on the Reliance website states: The total of the “principal amount and interest amount” paid during the EMI tenure minus instant discount or deferred cashback received equals the total amount mentioned on the invoice (at the time of making the purchase transactions).

In the case of the iPhone 13, for 6-month NCE option the total is 71887.32 + processing cost whereas for upfront payment, it will be 66900. With this difference, the upfront option is profitable. NCE will work only in the scenario where there is absolutely no upfront discount/cashback and when the purchases are of an extremely high value.

Edit: I will put a disclaimer here that the Reliance site is not completely clear in describing the final amount. The 71887.32 + 299 + GST is mentioned as the total cost post discount and then the additional cashback is mentioned separately. Hence, it is better to confirm the final invoice amount before the purchase as both interest and card cashbacks will make NCE a better option.