Steps to take care of when taking a no cost EMI-

You must have heard about no cost EMI. It means that if a loan is taken for a particular amount and you are not required to pay any interest on the principal amount. No EMI cost can be called a zero cost EMI. When a zero-cost loan is taken, the amount of interest forgone stands as a discount on the product for which loan has been taken. At the same time the borrower is allowed to make payments in instalments. 

However, it is necessary to know how the no cost EMI works and whether it is advisable to utilize the facility or not. A stepwise explanation is given here-

1. All the products in a particular store are not usually available at a no cost loan. The policy of the manufacturer or the store selling the product plays a big role in pushing a particular model. When they want to promote sales of a certain product, they adopt lucrative measures like discount and cashback too as an alternative to an interest free loan. Expensive consumer products such as electronics, jewelry and furniture carry such options.
2. The cost of interest is not considered in case of a zero-cost loan; however, it does not work like that though it looks like an interest free borrowing. Whenever a no cost loan is offered, there is a parallel offer to pay at the time of making the purchase. Either you pay fully or opt for an EMI option. The manufacturer or the seller, either of the two has to bear the cost of such a loan indirectly. It is not a free of cost transaction. 
3. Many consumers get tempted to purchase small items, at least like a mobile phone on a no interest EMI basis. While doing so, it must be kept in mind that timely payment of the instalments is still a criterion that must be followed. Failure to do so will have adverse consequences. The borrower’s credit rating or score gets affected. Say yes to such an offer only when you are capable to repay the loan amount timely and not otherwise. 
4. There could still be some processing fees etc involved while choosing the no cost loan. Know about the exact details of the actual charge before closing the deal as the offer lasts only for a specific period in such cases. In a hurry to buy something at a discount etc sometimes buyers tend to think irrationally. 

So, think twice before choosing a zero cost loan as the overall cost could be higher than how it looks like. Understand the underlying conditions and other costs involved. Limit yourself from buying it if it is nothing but a trap to force you to fall for the shopping spree.

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Krishna Rath is a SEBI Registered Investment Adviser, and since 2015 has been educating netizens on investments and insurance. Krishna is a fee only SEBI RIA and is Odisha's first SEBI RIA. With background in IT, Krishna is changing the advisory space with new innovations in AdvisoryTech.

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