Is no cost EMI a good option?
- You want to purchase a couple of desks, chairs and other office furniture for your small business.
- But, right now, you are running low on funds, and it’s difficult to pay for it from your meager working capital.
- Is there some way that you could purchase the furniture now and pay for it later in small instalments?
- You’re a retailer who sells big-ticket items like furniture, expensive gadgets, or home appliances.
- You have potential customers who would like to purchase your products on EMI.
- Is there some way for you to offer an easy instalment facility to your customers?
- No-cost EMIs are an excellent solution for both scenarios.
- In this article, we walk you through all that you need to know about no-cost EMIs – how it works, benefits for small business owners, and much more.
- Continue reading to decide if this popular finance scheme is the right choice for your business.
What Is No-Cost EMI?
- It’s a popular finance scheme for gadgets, home durables, furniture, travel, and other big-ticket purchases.
- Under this scheme, the borrower repays the cost of the product in EMIs spread over the agreed repayment term.
- To give a numerical example, let’s state that you purchase a laptop costing Rs. 30,000.
- Instead of paying for the gadget at the time of purchase, you agree to pay it in six Rs.5000 instalments.
- Bajaj Finserv, Amazon Pay Later, ZestMoney, Flipkart Axis Bank no-cost EMI are some of the popular options available in the market.
- This easy finance scheme has emerged as a popular choice for shoppers who cannot afford big-ticket purchases.
- It makes it easy for customers to “purchase a high-value item now and pay for it later.”
- The primary reason why no-cost EMI has captivated customers is that it’s highly convenient and hassle-free.
- You can opt for it while checking out your shopping cart, just like you would use other payment methods like credit/debit cards, internet banking, etc.
How Does No-Cost EMI Work?
In a no-cost EMI agreement, there are three parties involved:
1. The Retailer – who sells the product
2. The Lender – who extends the product loan
3. The End Consumer – who purchases the product
- The consumer purchases the product from the retailer using no-cost EMI. The retailer has a tie-up with a particular lender.
- Every time a consumer purchases from the retailer on no-cost EMI, the lender agrees to foot the bill and guarantees a loan to the customers.
- The consumer agrees to pay the lender in equal instalments spread over a fixed period.
- As the consumer pays each EMI amount, the lender passes it to the retailer.
- The lender recovers the cost of the loan by charging a small interest plus a processing fee, which is included in the initial cost of the product.
- Since the interest is not mentioned explicitly and is included in the listing price of the product, this scheme is commonly referred to as no-cost EMI.
- Generally, most online merchants require customers to have a credit card to be eligible for no-cost EMIs.
- When the customer purchases the product using this option, the total cost is deducted from the customer’s credit card limit.
- With every EMI the customer pays, the corresponding amount is restored in their credit limit.
- Here’s an example to help you understand it easily.
- Let’s say you have a credit card with a credit limit of 1 lakh rupees.
- You use the card to purchase a printer for the office worth Rs.30,000 on no-cost EMI.
- After the purchase, your credit limit will reduce to Rs.70,000. But, you don’t have to pay the amount immediately.
- You choose a six-month EMI of Rs.5,000 each month.
- As you pay the EMIs every month, Rs.5,000 is added to your credit limit, and by the end of six months, your entire credit limit of 1 lakh rupees will be restored.
Benefits of No-Cost EMI Payments for Small Businesses
- No-cost EMIs is a double advantage for small businesses.
- As a consumer, you can use this option to purchase big-ticket items for your business without having to pay for them immediately.
- It’s easy to opt for and does not require lengthy documentation processes like traditional equipment/business loans.
- You can opt for it while checking out, and the process takes just a few minutes.
- It’s cheaper than taking out a business loan to purchase machinery or equipment.
- As a business owner, offering no-cost EMI to your customers is a great way to increase sales and bring in new customers.
- It helps widen your customer base, by including customers who would not have been able to pay for your products out of pocket.
- It can also help in promoting sales of products that are slow-moving.
- Generally, most businesses offer no-cost EMI as an incentive to drive sales volumes of less popular products.
No-Cost EMI Doesn’t Mean Zero Interest
- When we hear the term “no-cost EMI,” it’s common to assume that it comes with zero interest.
- But, the fact is that no-cost EMI is a type of loan and just like all loans, it comes with an interest component.
- The only difference is that the interest is hidden within the EMI and is not mentioned upfront to the end-customer.
- We can hear you wondering, “in that case, how can I benefit if I offer this option to my customers?
- Should I bear the interest component?” Well, no. Here’s how it works.
How Are Online Merchants and Retailers Able to Offer No-Cost EMI?
- Online merchants and retailers make no-cost EMIs profitable for them by withdrawing the discounts offered.
- Let’s understand this with an example. Let’s say you want to purchase a laptop that costs Rs.60,000.
- Suppose you check out using your credit/debit card, net banking, or other regular payment methods.
- In that case, the retailer offers you an instant discount of Rs. 6000 bringing the price of the laptop down to Rs. 54,000.
- However, when you check out using the no-cost EMI option, you have to forego this discount and pay the full retail price.
- Let’s say you opt for the no-cost EMI payment option for 3 months.
- The interest rate applied is 10%, which is Rs.6000.
- This interest amount is also included in the cost, and you have to repay it in six instalments of Rs.10,000 each over the next six months.
- As you can see from this table, the customer pays more while using the no-cost EMI option.
- However, since the product’s final price is the same as the initial price listed, customers assume that they are not paying extra when they opt for no-cost EMI.
- They fail to understand that they miss out on discounts, which they could have got if they had paid for it out of pocket.
- Alternatively, merchants sometimes add the cost of the interest to the price of the product.
- So, if the laptop’s landing cost is Rs. 54,000, they list it as Rs. 60,000.
- The interest of Rs.6000 is added to the product price before it gets listed on the site.
- Thus, the customer assumes that they are purchasing the product for the same cost using no-cost EMI.
When Does it Make Sense to Purchase On No-Cost EMI?
- When you badly require a product – say a desktop for your office, but you don’t have the budget to pay for it upfront.
- You’re looking to improve the credit history and boost the credit score of your business.
- In this case, taking a quick loan (no-cost EMI) and repaying it on time can give your credit score a boost.
Understanding How No-Cost EMIs Work Can Help You Make Smart Decisions
- No-cost EMI is a great way to upgrade your office space and purchase gadgets without having to pay the entire amount.
- But, remember that, it’s a type of loan ultimately, and you have to repay it.
- Losing out on lucrative deals and discounts by opting for no-cost EMI may not be worth it.
- So, before you take the plunge, make sure to weigh the pros and cons of your decision carefully.
- Evaluate whether you need the product right away or if you could postpone the purchase a few months until you can raise funds for it.
- And, if you decide to go for no-cost EMI, make sure to read the fine print, so you don’t get surprises later on.
- If you decide to offer no-cost EMI to your customers, you can partner with the right banks/NBFCs to provide your customers with this payment option.
Be Credit Smart & Make Smart Financial Decisions!
Q-What is the difference between taking a regular EMI and a no-cost EMI?
Ans- When you repay a regular loan EMI, it includes two components – the principal (the original amount borrowed) + the interest. On the other hand, even though the no-cost EMI has hidden interest, the EMI appears to include only the principal (product price).
Q- Can I get a no-cost EMI without a credit card?
Ans- Yes. No-cost EMIs are also offered on select debit cards and preloaded cards. To check if you’re eligible for no-cost EMI on your debit card, get in touch with your bank.
Q- What are the products I can purchase using no-cost EMI?
Ans- No-cost EMI is generally offered for:
- Gadgets like laptops, mobiles, cameras, etc.
- Appliances like washing machines, air conditioners, televisions, refrigerators, etc
- Flight tickets and many more
Q- Does no-cost EMI involve processing fees?
Ans- Yes. There’s a small processing fee that is generally added to your first EMI. In the case of no-cost EMI on HDFC and ICICI credit/debit cards, the processing fee is a flat Rs.199.
Q- Is down payment needed when I choose no-cost EMI?
Ans- No. You don’t have to pay any money upfront while purchasing a product using no-cost EMI. However, note that you need to have sufficient funds to pay the first instalment.