What is no cost EMI?
Before 2013, Banks and other credit lending agencies used to offer zero-interest loans. They weren't technically interest-free but made the fool out of the customer and many ended up buying it. This led to RBI banning this way of presenting the loans. No cost EMI is the same loan scheme credit lending agencies offer but the wordings are changed. Although it still looks like there would be no interest associated with it, that's not the case.
What the lenders do is for whatever product you are requiring the no-cost loan, they would take back the discount which was earlier offered on the product. If we take the same example as we mentioned above where you want to purchase a laptop with 20,000 in hand. In case you choose the EMI option you will be getting the laptop for 50,000 and 1000 as interest. Otherwise, you would have received a discount of rupees 1000 on the purchase. The laptop which you could have purchased for 49,000 now costs you 50,000 because of no-cost EMI. There would also be some additional bank charges over this 50,000.
Working of no-cost EMI -
Usually, this no-cost EMI is offered on credit cards. Some lenders offer this scheme while others don't. In case your credit card company does not offer this scheme, unfortunately, you can't get the deal. This no-cost EMI offer is offered by retailers only on select products. This offer is usually rolled out on those products they wish to sell faster. The retailer gives the discount as the interest the customer would be paying on the No cost EMI offer.
Should you go for a no-cost EMI?
A lot of banks offer no-cost EMI on websites such as Flipkart, Amazon. Usually, this offer is rolled out on electronics such as laptops, phones, refrigerators, air conditioners, microwave ovens, washing machines etc. This is most of the time done by the companies to sell off their old stock faster so that when the new, costly stock arrives, people only have the option to buy the new ones.
Secured personal loan vs unsecured personal loan -
Secured personal loans are also offered where the security generally is your bank account, vehicle or another asset. They are easier to qualify for due to lower risk for the lender and also carry lower interest charges. But first, look for an eligibility calculator to see if you are eligible for a loan or not. Check SBI Personal Loan Eligibility Calculator here. Paying your loan on time is one of the major criteria that shape up your credit score.
When should you go for a personal loan?
You might be wondering about ways to get loans with no security and lower interest rates than personal loans. Unfortunately, such options don't exist. Since the risk for lenders is higher in personal loans, the amount charged would also be high.
Here are five situations where taking a personal loan would be the best option -
Debt consolidation for credit cards
Paying Off Other High-Interest Debts
Home renovation financing
Paying for a Major Life Event
Improving Your Credit Score
Purchasing necessary expensive equipment -
Getting a personal loan and paying it off on time certainly helps in improving your CIBIL score, especially if your credit history hasn't been all roses. There is a lot of Instant Personal Loan app that makes the process a whole lot easier for you.
If you have taken credit card debts earlier, taking a personal loan can help in creating what is called a 'credit mix'. If you have a credit mix that means you know how to handle different types of loans and managing them all properly and repaying on time shows that you are a well-informed borrower.
Conclusion -
With that being said, borrowing a personal loan is a very good option if done after keeping important things in mind. The no-cost EMI option on interest loans are nothing but the same as other loans and they don't mean that you would be saving any interest. It's just a way to sell the product.
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