Pay in full or zero-Cost EMI? What should you choose?

You see the ad for the latest phone available at ‘zero cost EMI’ and are tempted to buy it. After all, who wouldn’t love the ‘buy now, pay later’ scheme, right?

Zero cost EMI is a popular choice to buy products like smartphones and other gadgets. It is a payment scheme where the price of the product can be paid in installments over a specified period of time, with no interest cost.

What’s not to love, right? As the saying goes, if it’s too good to be true, then it probably is. Before jumping onto the ‘zero cost EMI bandwagon, let’s check if there is more than what meets the eye.

How does zero cost EMI work?

Dealers may offer Zero cost EMI schemes in various ways. For example, dealers may offer a Zero cost EMI option on certain discounted products, provided you forgo the discount and pay in full.

To illustrate, the dealer may be giving a 10% discount on a phone that costs Rs1,00,000. This means the actual cost of the phone Rs90,000. If a consumer opts for Zero Cost EMI, they will have to pay Rs1,00,000 for the phone. In this case, the consumer doesn’t have to pay an interest, but can’t avail the phone at the discounted price either.

Some dealers may structure the Zero Cost EMI scheme to include the interest cost in the product price. For example, if the interest is Rs. 15,000, it will be included in your EMI equally (Rs. 15000/12=Rs.1250 every month).

At other times, the dealer will show that no interest is charged to you but will charge a lumpsum amount as processing fees. If you pay upfront, you do not pay this amount.

Simply put, there are no free lunches. The Zero Cost EMI is taking an extra bite out of your wallet, one way or another.

Should you opt for a zero cost EMI or pay in full?

It is best to avoid zero cost EMI to the extent possible. Instead, enjoy a discount by paying in full. Check for discount offers and cash back offers. Several merchant bankers tie up with reputed brands and offer an additional discount when buying using their credit cards. It will further reduce your out of pocket cost. If you still want to go for zero cost EMI, consider the following.
• Read the terms and conditions. Check the difference in net cost, when buying through zero cost EMI v/s full payment.
• Review your repayment capacity. Can you pay the EMI on time without any hassle?
• Read the fine print. Check the penalty clause in case of defaulting on the EMI instalment.
• Defaulting on EMI will also adversely impact your credit score. You may have to shell out more in the future if you have a low credit score.

Views and opinions contained herein are for information purposes only and should not be construed as investment advice/ recommendation to any party or solicitation to buy, sale or hold any security or to adopt any investment strategy. It does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. The recipient should exercise due caution and/ or seek professional advice before making any decision or entering into any financial obligation based on information, statement or opinion which is expressed herein.

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