Social media influencers are being seen promoting the use of Credit Cards and the No Cost EMI or 0% Interest schemes to pay for things we want or need, claiming that they can help us improve our credit score and offer us some benefits.

Social media influencers are being seen promoting the use of Credit Cards and the No Cost EMI or 0% Interest schemes to pay for things we want or need, claiming that they can help us improve our credit score and offer us some benefits.

But are these options really as beneficial as they seem?

Or are they hiding some costs and risks that you should be aware of?

In this article, we will explore the harms of using no cost EMI and credit card rewards, and how to avoid them.

Why do people use credit cards and No Cost EMI?

Credit cards and the Zero Interest loan schemes are attractive for several reasons. First, they allow you to buy things without paying the full amount upfront, which can be convenient if you don’t have enough cash or savings.

Second, they can help you improve your credit score, which can make it easier for you to get loans or mortgages in the future.

Third, they can offer you some rewards, such as cashbacks, payback points, discounts, air miles, lounge access, etc., which can make you feel like you are getting more value for your money.

What are the hidden costs and risks?

However, credit cards and no cost EMI schemes also come with some hidden costs and risks that you should not ignore. Here are some of them:

 Interest charges: Even though no cost EMI schemes claim to have zero interest, they often charge you a processing fee or a higher price for the product, which is equivalent to paying interest. Similarly, credit cards charge you interest if you don’t pay the full amount due every month, which can add up quickly and make your debt grow.

Late payment fees: If you miss a payment deadline for your credit card or no cost EMI scheme, you will have to pay a late payment fee, which can be hefty and damage your credit score. Moreover, if you default on your payments, you may face legal action or harassment from the lenders or collection agents.

BNPL considered as personal loan: Some ‘No Cost EMI’ schemes are offered by third-party platforms that use the Buy Now Pay Later (BNPL) model. These platforms may not report your transactions to the credit bureaus, which means they will not help you improve your credit score. On the contrary, the credit bureaus may consider your BNPL purchases as Personal Loans, which can lower your credit score and affect your eligibility for other loans.

Paybacks promote more spending: One of the psychological effects of using credit cards and no cost EMI schemes is that they make you feel like you are spending less than you actually are. This can lead you to buy more things than you need or can afford, creating a cycle of debt and overspending. Moreover, the rewards that these options offer can tempt you to spend more to earn more points or cashback, which may not be worth it in the long run.

 Rewards that are not important: Another psychological effect of using credit cards and no cost EMI schemes is that they make you value things that are not important or useful for you. For example, you may use your credit card to get lounge access at airports, but how often do you travel by air? Or how much do you enjoy sitting in a lounge? You may end up paying more for your credit card fees than what you get from the rewards.

How to avoid the harms of using no cost EMI and credit card rewards?

The best way to avoid the harms of using no cost EMI and credit card rewards is to use them wisely and responsibly. Here are some best practices that you should follow:

Pay the full amount due every month to avoid interest and late payment fees, and also improve your credit score.

Use cash or debit cards whenever possible to avoid overspending and save on charges.

Compare prices and fees before buying to find the best deals. Don’t trust the 0% Interest or No Cost claims blindly.

Choose rewards that suit your needs and lifestyle. Don’t waste money on rewards that you don’t use or need.

Limit the number of credit cards and no cost EMI schemes that you use to manage your debt better and protect your credit score.

Conclusion

Credit cards and No Cost EMI / Zero Interest Loan schemes can be useful and convenient, but they can also be harmful and risky if you use them unwisely or irresponsibly. By following the above-mentioned best practices, you can enjoy the benefits of credit cards and No Cost EMI schemes without falling into the traps of debt and overspending.