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No Cost EMI has become a popular payment option for many people, especially when booking flights. This option allows you to pay for your purchase in monthly installments without any interest. But is it really as beneficial as it sounds, or is it a trap? Let's find out by looking at the real experience of a passenger, Rakesh Kumar, from Bengaluru.
What is No Cost EMI?
First, let's know about the No Cost EMI. It is a payment option that allows you to pay for your purchase in monthly installments without paying any interest. The interest cost is usually covered by the retailer or service provider. This option can be tempting because it seems like you are getting an interest-free loan. However, there are hidden charges that you should be aware of.
Experience of the Passenger
Rakesh Kumar, a resident of BTM Layout in Bengaluru, needed to book tickets to visit his hometown, Lucknow. Excited about the Independence Day offers from various booking sites and airlines, he decided to take advantage of the discounts.
He needed to book tickets for four people. After applying available coupons, the total cost for the outbound flight was ₹20,543. For the return journey, the tickets cost ₹21,594. By applying a regular coupon, he could reduce the cost to ₹20,194. However, he noticed an offer from a bank: a ₹2,000 discount for choosing No Cost EMI.
The Calculation
Rakesh quickly calculated and found that his tickets would cost ₹19,594 if he opted for No Cost EMI. Happy with the discount, he used his credit card to book the tickets.
Two days later, he received an email from the bank confirming the conversion of his transaction to EMI:
- Charge amount: ₹19,594
- EMI tenure: 6 months
- Interest rate: 14% per annum
- Processing fee: ₹199 plus GST
- Foreclosure charges: 3% of the outstanding balance along with applicable taxes
The Reality of No-Cost EMI
Confused, Rakesh called the bank to understand why there was an interest charge on a No Cost EMI. The bank explained that the No Cost EMI does not mean zero interest. Instead, the service provider covers the interest cost by giving you an upfront discount, in this case, ₹2,000.
Rakesh then considered reducing the EMI tenure to three months, hoping to pay less interest. The bank informed him that for a three-month EMI, the interest rate would be 16% per annum. Frustrated, he decided to pay the full amount immediately, but this would incur a foreclosure charge of 3% plus a processing fee of ₹199 plus GST, totaling ₹928.
The Final Cost
In the end, Rakesh's tickets cost him ₹21,219 due to the interest, GST and Processing charges. Had he used a regular coupon, the tickets would have cost ₹20,194. Thus, the ₹2,000 discount turned out to be a trap, costing him an additional ₹1,000.
Lessons Learned
Rakesh Kumar's experience highlights the hidden costs associated with No Cost EMI. Here are some key takeaways:
1. Interest Cost: The interest is covered by the service provider through an upfront discount, but you still end up paying the interest indirectly.
2. Processing Fees: There are additional charges like processing fees and foreclosure charges if you decide to pay off the loan early.
3. Final Cost: Always calculate the total cost, including interest and fees, before opting for No Cost EMI.
Final Thought- Is No Cost EMI Really a Scam?
Yes, if you can afford to pay for the flight expense upfront, No Cost EMI can be a scam. You might end up paying ₹1,000 to ₹2,000 more. If you fail to pay the EMI on time, the cost can increase even further.
No, if you are facing a financial crunch, No Cost EMI can reduce the immediate burden on your pocket, making it a helpful option.
