On Diwali across the country, people are making digital payments extensively on e-commerce platforms and stores to purchase clothes, electronics, crackers and gifts. To avoid making a large payment at one go, many people are choosing no-cost EMI option from credit cards. If you are also looking for no-cost EMI option for shopping with credit card, then wait, because no-cost does not mean completely free here. The processing fees involved, 18% GST and not getting instant discounts can make your purchase quite expensive. 1. Extra burden of processing fees: Many banks and credit card companies charge a separate processing fee if you choose the no-cost EMI option. This fee can range from ₹99 to ₹500 or more. Even though you don’t have to pay interest, this one-time fee makes your purchase expensive. 2. 18% GST on interest and fees In no-cost EMI, the merchant or bank often deducts the interest amount as a discount from the product price, but technically the bank charges interest on that transaction. As per rules, GST at the rate of 18% is levied on EMI interest and processing fees, which has to be paid by the customer. 3. Disadvantages of upfront and instant discounts: During the festive season, banks give direct instant discount of up to 10% or up to ₹ 1,500 on credit cards. When you opt for ‘No-Cost EMI’, you often do not get this flat discount. In such a situation, if you had made full payment, the product would have been cheaper for you as compared to EMI. 4. Pre-closure and foreclosure charges If you want to repay your credit card dues before the completion of the EMI tenure, banks may charge you foreclosure or pre-payment charges. This charge usually ranges from 2% to 5% of the total amount saved, plus 18% GST is applicable on it. 5. Blocking of credit limit and impact of overall debt. As soon as you convert a purchase into EMI, the entire value of that product gets blocked from the total limit of your credit card. As you pay the installment every month, the limit gets unblocked. Apart from this, buying every item on EMI by looking at small monthly installments can spoil your overall monthly budget. What to do for smart shopping? Experts advise not to make purchases during festivals just for small installments. Before choosing any offer, make sure to compare the final bill with the full payment including processing charges, taxes and lost discounts. The right deal is one that fits your budget and doesn’t burden you with debt after the festival is over. Knowledge Part: How does no-cost EMI work? Banks cannot legally give loans at 0% interest. Therefore, in no-cost EMI, the merchant (shopkeeper or e-commerce site) gives the same amount of interest to you in the form of a discount in the price of the product. But the customer has to pay 18% GST on this discounted interest from his own pocket.
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No-cost EMI from credit card is not completely free: Processing fee, 18% GST will put extra burden on the pocket; Check 5 facts before purchasing
