Pros And Cons Of ‘no Cost Emi’ Facility On Credit Card Transactions

Are you planning to purchase a mobile or a wedding gift for your bestie, or any other home appliance, but don’t have sufficient funds to make the purchase? Don’t worry, the ‘No cost EMI’ feature offered on many credit cards is at your rescue. Not only that the feature allows you make the instant purchase without paying a penny, it will also enable you to pay the amount in easy monthly instalments at no extra cost.

If your credit card is offering ‘No cost EMI’ facility, you can give it a try for all your big-ticket purchases. Let’s look at the advantages and disadvantages of the facility to have a better understanding of the feature.

Advantages offered by credit card ‘No cost EMI’ facility

• Easy conversion: With the EMI facility, the big-ticket purchases no more scare you. You can quickly convert the entire amount into EMI and pay it in small instalments every month.

• Zero interest: While the typical EMI facilities offered on credit cards attract interest on the purchase value, the No cost EMI facility frees the cardholder from paying an additional amount for the purchase. The interest charged will be offered as discount and only the principal amount will be equally divided over the selected repayment tenure.

• Quick processing: Conversion of transactions into EMI does not require any approval from the bank nor takes time for processing. It’s as instant as making an online purchase. When you opt for ‘No cost EMI’ using your credit card, the purchase amount will be blocked by your credit card issuer and after a few days, it will be converted into EMI. The first EMI will reflect in your next billing statement and will be included in the minimum amount due.

• Flexible repayment: Most credit cards offer a flexible repayment tenure for credit card EMI transactions. The tenures range from 3 months to 24 or 36 months making it easy for the cardholder to repay in smaller instalments.

• Positive impact on credit score: In case you have opted to make the big-ticket purchase using your credit card without using the EMI facility and for some reasons you were not able to repay the amount on time, you will end up in trouble. While partial repayment will attract interest on the remaining due, non-payment would lead to default. This could potentially impact your credit score.

On the other hand, opting for the ‘No cost EMI’ option would certainly save you from such situation as well as create a positive impact on the credit score as there won’t be any defaults.

• Available across multiple products: Many credit cards are offering the no-cost EMI facility on a variety of products including mobile phones, washing machines, laptops, AC, TVs, high-end cameras, refrigerators, kitchen appliances, furniture, etc.

A few drawbacks

While most of the features offered by the ‘No cost EMI’ facility look attractive, there are a few things cardholders need to consider before opting for the facility.

• A one-time processing fee: There may not be any interest on the EMI amount, but banks typically charge a one-time processing fee to convert the transaction into EMI. It could typically vary from 1 to 2.5% of the transaction value based on the credit card issuer. However, compared to the percentage of interest which is usually charged on EMI transactions, the one-time processing fee may not make the purchase expensive.

• Credit limit gets blocked till repayment: Even though you will be paying only a tiny portion of the total purchase value as EMI every month, the credit limit on the card will be blocked for the entire purchase value on the date of the transaction. Despite your monthly EMI credits, the limit remains frozen until the payment is made in full. This could potentially affect the future spending capacity on the card.

• Pre-closure at additional cost: While some credit card issuers do not allow pre-closure of the EMI facility, some do allow but at a certain fee. Typically, banks charge 1-2% pre-closure fee for foreclosing the EMI facility.

By and large, the advantages offered by ‘No cost EMI’ outweigh the disadvantages, proving it to be a beneficial option for those planning to make big-ticket purchases using their credit cards. However, before choosing the facility, make sure to check with your credit card issuer about the availability of the feature on the purchases you wish to make. It’s just to carry out your purchases as per the bank’s policies to avail complete benefits of the ‘No cost EMI’ feature. Happy shopping!