Growth of no-cost EMI in India
The Indian consumer market has been conservative, with a balance of large and small purchases. However, due to the availability of no-cost EMI as a payment mode, there has been a significant shift in the purchase behaviour of Indian consumers in recent years.
The pandemic that started in early 2020 is among the main reasons for this shift. With the pandemic, India saw an increase in both pay and job cuts.
Due to this, customers could not afford many products and services. Not only that, but the prolonged pandemic nearly turned many utilitarian goods into luxury items for the consumer simply by being unaffordable.
Needless to say, this had an impact on sales across a wide range of brands and industries. For example, despite increased demand for electronic appliances, the consumer durables industry saw 30% lower sales in 2020 compared to 2019.
In such a situation, there was an urgent need to increase affordability for the general public. It became critical to enable or equip consumers to purchase both large and small-ticket items depending on their needs rather than just affordability.
This made no-cost EMI one of the most preferred payment methods for the majority of buyers in India.
What is no-cost EMI (with an example)?A no-cost EMI is a popular payment scheme online and offline businesses use to enable their consumers to pay for their purchases in Equated Monthly Instalments (EMIs) spread out over a set period. The 0% interest charged over the entire value, hence the name, makes it an irresistible proposition for end users. While most EMI options charge high interest, this option has no interest fee. For instance, if a customer purchases a product worth Rs. 30,000 and chooses a 3-month no-cost EMI plan, he or she will only have to pay Rs. 10,000 per month. |
Interesting Read: A Complete Guide to No-Cost EMI to Help You Get Started
How does the no-cost EMI scheme work?
There are two different ways that these schemes work. One common method is to forego the discount and instead pay the interest cost to the bank or financial institution.
Another approach is to include the interest amount in the product’s price. Let’s understand both of these schemes better with examples:
Matching interest with discount
The most common way retailers provide ‘no-cost EMI’ is by offering discounts in proportion to the total amount of interest to be paid. Let’s assume a customer wishes to purchase a phone for Rs 30,000/-.
They would have to pay Rs 4,500 in interest under the 3-month EMI plan at a 15% interest rate. However, in no-cost EMI, the customer is not eligible for a discount and must pay the full price of the Smartphone in EMIs.
What exactly does this mean? The Smartphone would cost Rs 25,500 if the customer made an upfront payment. They get it for Rs 25,500 off the regular price.
However, if they choose the no-cost EMI, they will pay Rs 30,000. and don’t get the Rs 4,500 discount that goes toward loan interest. The total cost of the Smartphone is divided into money paid to a retailer and interest paid to a financier.
Adding interest amount to the product cost
Let’s assume the product costs Rs 15,000. The retailer entices customers to purchase this product with a ‘no-cost EMI’ plan for Rs 17, 250. The interest of Rs 2,250 has already been added to the cost of the product and will be paid in instalments by you.
As a result, if the customer chooses a three-month EMI plan, the monthly payment will be Rs 5,750. The processing fees of Rs 2,250 are sometimes covered.
Attract more customers with no-cost EMI
If you want to grow your online business quickly, you must consider the ‘no-cost EMI Model.’ Making your offerings affordable is among the best methods to entice more customers to purchase your products, and the no-cost EMI scheme is the simplest way to do that!
For example, if you are a mobile retailer selling a diverse range of popular smartphone brands online, an offer that reads no-cost EMI mobiles on all of your sales and promotional pages will undoubtedly entice more customers.
The idea of buying an expensive smartphone that is not affordable can be turned into a reality with an affordable EMI scheme where customers pay nothing extra! This strategy can undoubtedly encourage prospective customers to make a purchase decision.
Interesting Read: Add More Cheer this Festive Sale Season with Paytm Payment Gateway
Why are no-cost EMIs popular among online businesses?
Unlike a traditional EMI, which requires a buyer to pay a down payment, an interest rate, and a processing fee, the no-cost EMI scheme lets your online shoppers pay only the product price in affordable EMIs over a convenient tenure of their choosing.
So, whether they want to buy an expensive lifestyle product that is out of their price range or a laptop they’ve been eyeing for a long time, the appealing payment option of interest-free EMIs will enable them to buy now rather than waiting for months.
Your online brand will attract repeat buyers by assisting your online shoppers in purchasing your products without incurring financial hardship.
Frequently asked questions regarding no-cost EMI
Q1. Do EMI options differ for different banks?
Yes. Banks provide their customers with various simple EMI payment options. For example, the total purchase price can be divided into EMIs of 24, 12, 6, and 3 months.
Q2. For what type of purchases is a no-cost EMI payment option suitable?
When your customers want to purchase an expensive item but do not have sufficient cash for the upfront payment, no-cost EMI is the best option.
On a concluding note
While the pandemic gave a boost to the use of no-cost EMIs, the Indian buyer is now accustomed to this payment method.
So, it is safe to conclude that no-cost EMI payments are not just a thing of the past, but will be around for a long time to come.
What’s important to note here is that, as the Indian buyer’s reliance on no-cost EMIs grows, businesses must tailor their payment modes and enable no-cost EMIs for their customers.
No-cost EMI is now a key to increasing conversions and, as a result, profits for businesses.
If you’re a business owner looking for ways to boost sales, here’s one formula you can start using right away with the help of the Paytm Payment Gateway. So wait no more –
