EMIs are payment options where the consumer gets to pay their purchase amount in equated monthly installments over a period of time. In the case of no-cost EMIs, there is no interest charged on the monthly installments. It is a highly cost-effective way of paying your dues. However, do they affect your credit score in the long run? Yes, they do. Always remember, even though EMIs are staggered payments over a period of time, one still has to pay them. Non-payment will reflect negatively on your credit report and hence affect your credit score.
How can no-cost EMIs affect your credit score negatively?
While low-cost EMIs are a convenient way to reduce your financial burden. Care should be taken before you convert your outstanding into EMIs. Low-cost EMIs can hurt your credit score negatively if the monthly payments are not made before the due date. Consider no-cost EMIs as another loan that you have taken and need to repay every month. Just like a loan, non-payment of EMIs affects your credit report and your credit score negatively. This negative impact will be considered by lenders before approving a loan. Hence, it is very important to maintain financial discipline while opting for no-cost EMIs.
What are the benefits of low-cost EMI?
- It makes your big payments easy to manage. It is especially very helpful in cases where the consumer cannot pay heavy down payments all at once.
- Instead of paying all of the outstanding amounts at once, you can keep the money in your bank and earn simple interest on it. So, you grow your money while you pay your outstanding installments.
- It helps in building up your credit score. A well-planned EMI payment helps you build your credit score positively if you pay your installments on time. The lender perceives it as a positive factor and will be willing to lend a loan at a lower interest rate.
- You save money by opting for EMIs. Since it is a no-cost EMI, you save the interest otherwise paid on loans or credit cards used to pay for your purchase or payments.