Many festive 'no-cost' EMI and BNPL schemes hide the real price of goods through processing fees and lost cash discounts. These credit options can result in a higher total payment than buying upfront. Consumers should calculate the total amount to be paid, including all taxes and fees, instead of focusing only on the monthly installment amount.
Retailers often use the festive season to promote credit-based payment methods like 'No-Cost EMI' and Buy Now, Pay Later (BNPL) schemes. While these options are marketed as financial boons that allow for immediate purchases, they often carry a complex structure of fees that can increase the final price of an item. The convenience of breaking a payment into small monthly chunks can mask the actual cost of borrowing.
How No-Cost EMI Often Works
When a merchant offers a 'No-Cost EMI' plan, they typically subsidize the interest cost. This subsidy is often funded by removing the upfront cash discount that a buyer would have received otherwise. If a product is listed at a discount of 5% for cash payments, that same discount is usually withdrawn when a customer selects the 'No-Cost EMI' option. Essentially, the consumer pays for the 'interest' by losing the cash discount. To understand the true cost, buyers should compare the total payable amount of the EMI plan against the discounted price available for upfront payment.
The Impact of Processing Fees and Taxes
Beyond the interest aspect, most banks and Non-Banking Financial Companies (NBFCs) charge a processing fee for converting transactions into EMIs. These fees generally range from a few hundred rupees and vary by provider. Additionally, an 18% Goods and Services Tax (GST) is applied to these processing fees. Even if the interest rate is zero, the combined weight of processing charges and GST can add up, meaning the total outgoings are higher than the sticker price of the product.
BNPL Risks and Credit Health
BNPL services function as short-term digital loans. While they are easy to access, they carry risks similar to any other loan. If a user misses a payment deadline, the late fees can be substantial, often calculated as a percentage of the outstanding amount or a fixed penalty. Furthermore, BNPL services often require a credit check. Applying for multiple credit lines across different platforms during a short festive window can lead to multiple hard inquiries on a credit report. This activity can negatively affect an individual's CIBIL or credit score, which may impact the ability to secure larger loans, such as home or car loans, in the future.
Managing Festive Spending
Financial discipline requires separating the utility of a purchase from the convenience of its payment method. Accumulating several small EMI obligations across various product categories can create a silent strain on monthly household cash flow. Each installment may appear small in isolation, but the cumulative total can leave little room for emergency savings or essential expenses. The most effective strategy is to calculate the total repayment amount, including all penalties and hidden charges, before finalizing any checkout option. By prioritizing the total cost over monthly figures, consumers can avoid common financial traps and maintain better control over their budgets.