In the realm of consumer finance, the allure of no-cost EMIs (Equated Monthly Installments) often stands as a beacon of affordability and convenience. These schemes, prevalent in the retail landscape, promise the gratification of purchasing without bearing the burden of hefty interest charges. Yet, beneath the surface of this seemingly benevolent offer lies a labyrinth of misconceptions and truths that demand exploration.
As consumers navigate the intricate world of no-cost EMIs, they encounter a myriad of myths and facts that shape their understanding and decision-making. From skepticism surrounding hidden charges to the genuine benefits offered, deciphering the intricacies of these financing options becomes imperative.
“There is no denying the fact that India's rising and aspirational middle class is one of the fastest growing segments of its population. Add to it another fact that we are one of the youngest populations in the world, therefore the demand for big-ticket items like consumer appliances, electronics, watches, apparels, home decor and furniture, and other luxury items is constantly on the rise. Pine Labs' PoS terminals support an integrated network of many banks and NBFCs that offer to their consumers attractive EMI offers at discounted rates and often at no additional cost to the consumers. As a technology platform, we enable the execution of this arrangement between the consumer and the lender through a speedier, secure, and 100% paperless EMI availing process at the checkout via our PoS terminals,” said Mayur Mulani, Chief Growth Officer - Affordability at Pine Labs.
In this piece, Pine Labs Pay Later Ecosystem research on no-cost EMIs has been instrumental in distinguishing between myth and reality, ultimately empowering individuals to make well-informed financial decisions. Here are some of the myths and facts you must know.
Myth: Retailers and financial institutions might impose a processing fee for no-cost EMI transactions.
Fact: Retailers do not impose any processing fee for any transaction involving no cost. Some financial institutions charge a processing fee to go directly to the customer accounts. However, these processing fee charges are not common for both No-cost and Customer Interest Bearing EMIs.
Myth: Retailers impose a higher interest rate than conventional loans.
Fact: No-cost EMIs are cheaper and way more convenient than conventional loans/personal loans. Retailers don’t impose any interest on customers for any purchase made on a no-cost EMI. Also, as these EMIs are at no cost, customers don’t pay any interest at all. Interest charged by banks to customers is paid by either brand or retailer in the form of discounts and cashback in their accounts.
Myth: There are concealed charges like processing fees.
Fact: There are no concealed charges for No-cost EMI transactions. Also, any processing fee levied by the bank is shown upfront to the customer and printed on the payment charge slip given to the customer by the retailer.
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Myth: Retailers elevate product price to include interest amount
Fact: Any cost associated with offering no-cost EMI is borne by brands only, and retailers need not spend any penny to offer that to customers. This tool helps retailers sell products to more customers without incurring any cost, so they don’t charge anything additional to customers. Also, many brands/banks keep offering additional discounts/cashback to customers, which are primarily applicable only on no-cost EMI transactions, so this is cheaper for customers.
Myth: NCE is available only for high value products.
Fact: No, products as low as Rs 3000 can be purchased on NCE using DC/CC.
Myth: Risk of overextending finances.
Fact: No. NCE is given on CC/DC based on your pre-approved limit. Customers use their existing limits to purchase anything on No Cost EMI, so there is no risk associated with financing.
Myth: Eligibility criteria differ based on retailer and products.
Fact: Eligibility criteria are based on the pre-approved limits from your banks, and these are different across categories - auto, consumer durables, mobiles, etc.
Myth: Sellers absorb the cost of credit (interest amount) and hence bump up the product price.
Fact: Sellers and brands together absorb the cost of credit to offer convenience & affordability to the customer. They do not increase the product price, but in contrast, they give additional discounts to customers on purchases done on EMI in partnership with financial institutions or banks. So, purchases made on EMI are cheaper for customers.
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Myth: There are hidden charges.
Fact: There are no concealed charges for no-cost EMI transactions. Also, any processing fee levied by the bank is upfront shown to the customer and printed on the payment chargeslip given to the customer by the retailer.
Myth: Interest is added to the product price/price inflation.
Fact: On any no-cost EMI linked purchase, the customer doesn’t pay any interest at all. Interest charged by the bank to customers is paid by either brand or retailer in the form of a discount during purchase or cashback credit post facto (max within 90 days).
Myth: Retailers do not offer ongoing discounts if customers opt for EMI.
Fact: Most of the discounts are offered by Brands/OEMs in partnership with issuers/lenders and are applicable to NCE-linked purchases, too. As per industry practice, we see higher discounts offered on NCE purchases rather than one-time payments.
Myth: Actual interest may not be explicitly disclosed.
Fact: On no-cost EMI purchases, any interest amount levied by a financial institution is either discounted or given in the form of cashback. All such details are explicitly mentioned on the charge slip.
Myth: Interest is added to the product price/price inflation.
Fact: No. Retailers actually offer upfront discounts so that the effective price is paid only after principal and interest.
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Myth: You end up paying even the equal amount you would have paid for a personal loan.
Fact: The customer is liable to pay the entire interest amount on Personal Loans. In the case of NCE, any such interest is given as a discount or cashback, so it is always cheaper than a personal loan.
Myth: Hidden charges are added to original product prices.
Fact: There are no concealed charges for no-cost EMI transactions. Also, any processing fee levied by the bank is shown upfront to the customer and printed on the payment charge slip given to the customer by the retailer.
Myth: A down payment is required.
Fact: Zero down payment is required for NCE schemes.
Myth: NCE has an impact on credit score.
Fact: NCE has no linkage with a customer’s credit score. A customer's credit score is impacted by any default or delay in paying their monthly credit card outstanding/bill.