No-cost EMI, a short form for Equated Monthly Instalment, has become a ground breaker for credit card users.
No-cost EMI
Have you ever fallen in love with a new gadget or appliance, only to be stumped by the price tag? We have all been there. But what if you could enjoy that purchase now and spread out the cost without any hidden fees? That's the magic of no-cost EMI on credit cards. It sounds too good to be true.
Today, in this blog, we will dive deeper and explore this popular payment option. We will unpack the concept of no-cost EMI on credit cards, understand how it works on these cards, and answer some burning questions you might have. We will also explore the benefits and potential drawbacks to consider before swiping your card. So, let us unlock the secrets of this financing option.
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How no-cost EMI works on credit cards
No-cost EMI, a short form for Equated Monthly Instalment, has become a ground breaker for credit card users. It allows you to purchase big-ticket items and split the cost into manageable monthly payments, seemingly without any interest charges. But before you hit that "pay with EMI" button, let's dissect the mechanics behind this seemingly free lunch.
1. The merchant takes the wheel: Unlike regular EMIs, where the bank charges interest, schemes of no-cost EMI on credit cards involve a collaboration between the merchant (the store you're buying from) and the issuing bank (the bank that provides your credit card). Here's the breakdown:
2. Merchant discount rate (MDR): Generally, merchants pay a fee to the bank for every credit card transaction. In a no-cost EMI scenario, the merchant agrees to pay a higher MDR compared to a regular credit card purchase. This increased fee essentially covers the interest you would have otherwise paid
3. Price: In some cases, the merchant might inflate the product's price slightly to accommodate the MDR. This way, they can offer no-cost EMI without incurring a loss. So, it's always wise to compare prices before opting for EMI, ensuring you're not simply paying extra for the convenience
4. The bank's role: While the bank doesn't charge interest directly, they still facilitate the transaction. They handle processing the EMI payments and ensure you make your monthly instalments on time. Here's what you can expect on your end:
5. Credit utilisation: Remember, even though it's called "no-cost," the EMI amount still reflects on your credit utilization ratio. A high credit utilisation can negatively impact your credit score. So, be mindful of the total EMI amount relative to your credit limit
6. Processing Fees: While interest-free, some banks might levy a processing fee for availing of no-cost EMI. This fee usually translates to a small percentage of the purchase price
What are the benefits of no-cost EMI on credit cards?
1. Improved cash flow: No-cost EMI allows you to manage your finances better. By spreading the cost, you avoid a large upfront payment, freeing up your cash flow for other expenses
2. Budgeting advantage: Fixed monthly instalments make budgeting easier. You know exactly how much you need to pay each month, preventing unexpected financial strain
3. Larger purchases made possible: No-cost EMI opens doors to bigger purchases you might have otherwise delayed due to budget constraints. It can be particularly beneficial for essential items like appliances or electronics
What are some potential drawbacks to consider?
1. The temptation to overspend: The ease of EMI can lead to impulsive purchases. It's crucial to stick to your budget and only opt for EMI on items you genuinely need
2. Maintain discipline: Missing EMI payments can incur late fees and damage your credit score. Ensure you can comfortably manage the monthly instalments before choosing no-cost EMI
3. Hidden costs: Always double-check for processing fees and compare prices with non-EMI options. You might be paying a slight premium for the convenience of EMI
Is no-cost EMI on credit cards ideal for you?
No-cost EMI on credit cards can be a valuable tool, but it's not a one-size-fits-all solution. You must consider these factors before deciding:
Financial discipline: Are you confident you can manage the monthly payments without straining your finances?
Purchase necessity: Is the item a need or a want? Prioritize essential purchases that might benefit from the spread-out payments.
Alternative options: Can you save up for the purchase or explore cheaper alternatives that fit your budget better?
Maximise your no-cost EMI experience
1. Shop around: Compare no-cost EMI offers from different banks and merchants to find the most favourable terms and processing fees.
2. Read the terms and conditions: Before finalizing the purchase, understand the EMI tenure, any processing fees, and late payment penalties.
3. Plan your budget wisely: You must factor in the monthly EMI payments when creating your budget to ensure smooth financial management.
Manage your finances wisely with no-cost EMI on credit cards
No-cost EMI can be a smart way to manage your finances and make larger purchases more accessible. However, responsible use and careful consideration are key. You must understand the mechanics and potential drawbacks of leveraging no-cost EMI on credit cards. It is important to note that informed purchases lead to financial freedom, and no-cost EMI, when used strategically, can be a powerful tool on your financial journey.
As a business owner, you must offer such payment options to your customers. If you are looking for one, connect with Pine Labs. They offer a range of PoS systems, from contactless payments debit and credit cards, to UPI, mobile wallets and reward points. Moreover, they accept over 100 payment modes at your store quickly and securely.
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