The word EMI means Easy monthly installment. The concept of EMI was introduced so people can buy expensive things with ease. But, EMI always comes with a interest rate. The No Cost EMI option however allows you to buy things without paying the interest. The interest the bank charges is given as a discount to your by the company. There is always a fixed service fee. Which is around 1% or higher depending on the provider. Even though this option is available for almost everyone now people still don’t buy things using no cost EMI. I prefer every liability that you buy if you have option to opt for no cost emi you should take it.
Interest
Let’s do some math and understand how no cost emi benefits you in the long run. We need to take all the charges into account. Let’s say you want to buy a new iPhone that costs around 60K INR. You go for a no cost emi option and get that for 5K per month for 12 month no cost emi with a service fee of 600. Total cost of iPhone is 60600INR. Now, let’s say you keep that money in a liquid fund that gives you around 7% yearly returns which accounts to 0.5% per month. First month you earn interest on 55K then on 50K and so on. Total Interest accumulated in a span of year is somewhere around 1700INR which is around 1.83% savings on money. Now, if you buy all your liabilities with No Cost EMI think about how much can you save.
Caution
Yes, No Cost EMI can help you save lot of money in the long run especially for larger transactions. But, you should always bear in mind you should never purchase something that you can’t afford. If you don’t have the cash for full payment there is no point of buying liabilities on EMI. There is a famous 1/10 rule that you should abide by. You are allowed to spend 1 rupee on liability for every 10 rupee asset.
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