Online shopping has never been easier thanks to the introduction of buy now pay later (BNPL) platforms that have revolutionized the way people shop for goods and services online. With BNPL, consumers can shop for items they can't necessarily afford at present and pay for them later over a set period, often in monthly installments. This has made it possible for many people to purchase items they would typically not have been able to afford. However, BNPL is not a one-size-fits-all solution and requires careful consideration before diving into it.
One popular type of BNPL is the buy now pay later in EMI. EMI stands for equated monthly installment, a form of instalment payment where the bank or the financial institution offers the consumer a loan to purchase a good or service and decides the repayment period. EMI is essentially interest added by the bank to the principal amount that the consumer has borrowed. This form of payment is prevalent in India and is also widely used in countries with a rapidly growing middle class and a large consumer base, such as China, Brazil and, of course, India.
With that said, here's everything you need to know about buy now pay later in EMI.
How It Works
Buy now pay later in EMI allows customers to purchase items on instalment and to receive their full value upfront while spreading payments over several months. This gives the customer the chance to pay for the item over a more extended period without having to wait until they have saved up enough to make the full payment. While it seems like a good deal, it's important to note that every payment made on the item comes with a small interest rate. The bank or financial institution offering the loan essentially earns money on the loan by adding a small percentage charge to it.
EMI in Front Load Versus Top Load
When it comes to buying appliances such as washing machines, there is the option of paying in EMI. However, there is a difference between the two types of EMI payments, which is known as front load EMI and top load EMI.
Front Load EMI
In front load EMI, the interest rate is calculated on the full loan amount upfront, which is then deducted from the loan amount at the time of purchase. This means that the consumer is either left with a smaller loan amount or a shorter repayment period. In essence, the interest rate is deducted from the principal amount, which is then repaid over the remaining life of the loan. This is beneficial to those who are looking to minimize their interest payments as much as possible.
Top Load EMI
In top load EMI, the loan is disbursed fully upfront, with the interest rate attached to it calculated on the total loan amount. This means that the total cost of interest is paid over the repayment period at the end of the loan term. As such, the EMI payments will be higher than those of a front load EMI, but it still allows the consumer to purchase the item at the time of sale without having to wait for the loan to be processed.
The Pros and Cons of Buy Now Pay Later in EMI
Pros
Easy Application
One of the most significant benefits of buy now pay later in EMI is its ease of application. It doesn't require any physical presence in banks or financial institutions, and one can apply online. The only requirements are a government-issued ID and proof of income.
Access to Items They May Not Have Been Able To Afford
Another advantage of buy now pay later in EMI is that it allows people to buy items they may not have been able to afford initially. This is particularly beneficial for those who have urgent needs but do not have the finances to buy items outright.
Fixed Payments
EMI payments are always fixed, meaning the amount remains the same throughout the repayment period unless there is an agreement with the bank or financial institution offering the loan. This makes it easier to budget since the payment remains the same every month.
Cons
The Interest Rate Can Be Expensive
While buy now pay later in EMI can be an excellent way to purchase items, it's important to note that the interest rate can be quite expensive. Customers must be mindful of the interest rate charged by the financial institution or bank offering the loan. It is imperative to read the fine print before accepting any loan agreement.
Late Payment Fees
Another disadvantage of buy now pay later in EMI is that late payment fees can be quite costly, and not paying on time can lead to blacklisted status. Therefore, it's important to ensure that payments are made on time to avoid any hidden fees.
May Impact Your Credit Score
Defaulting on EMI payments or being frequently late on repayments can significantly affect your credit score. As such, paying debts in full, including EMI payments, on time is crucial to maintaining a good credit score.
Conclusion
Buy now pay later in EMI is a useful payment method that allows customers to purchase items they may not have been able to afford initially. However, before you decide to pursue this option, it's important to consider the advantages and disadvantages of the payment method and conduct thorough research before accepting any loan agreement. With careful consideration and proper management, buy now pay later in EMI can be an excellent way to enjoy the benefits of purchasing items without the primary burden of paying for items outright.