Zero-interest EMI schemes appear attractive at first glance, but they come with potential downsides
In recent years, zero-interest EMI schemes have been popular in India, allowing people to buy expensive things without immediate payment. These plans promise affordable payments by spreading them out, but the fine print often reveals a different picture. Many consumers are ignorant of the hidden costs, hazards, and long-term effects of such offerings.
This article discusses how zero-interest EMI plans might cost more than planned and harm financial wellness.
Zero-interest EMI (Equated Monthly Instalment) plans may seem appealing, however customers should examine their drawbacks:
1. Hidden Costs
Processing Fees: Most zero-interest EMI schemes include a hefty processing fee, which effectively increases the overall cost of the purchase.
Discount Removal: Retailers often offer zero-interest EMI schemes by removing upfront discounts that might otherwise be available for full payments.
2. Limited Negotiation
When opting for an EMI plan, the ability to negotiate the price at a retail outlet of the product may be limited since these schemes are tied to pre-arranged terms with lenders.
3. Credit Card or Loan Dependency
Many zero-interest EMIs are available only through specific credit cards or consumer loans. This could lock customers into using specific financial products with additional fees or unfavourable terms.
4. Impact on Credit Utilisation
Opting for such schemes increases your credit utilisation ratio, which could impact your credit score if you don’t manage payments properly.
5. Risk of Overspending
The lure of zero-interest EMI often leads consumers to purchase more expensive items or additional products, which might strain their finances over time.
6. Early Payment Charges
Some schemes include penalties for early loan repayment, negating the flexibility consumers might expect.
7. No Actual Interest-Free Benefit
In reality, the “interest” may already be factored into the product price or through associated fees, meaning you might not save as much as expected.
8. Potential for Financial Strain
Even with zero interest, recurring EMIs could strain monthly budgets, especially if the consumer has multiple such commitments.
Tips to Mitigate Risks:
- Compare the total cost of purchase under EMI vs. outright payment.
- Check for any processing fees or hidden charges.
- Avoid unnecessary purchases just because an EMI option is available.
- Ensure timely payments to avoid penalties or a dip in your credit score.
Understanding these aspects can help you make informed financial decisions while navigating seemingly attractive offers.
