Adding cheer to the festive season, the government has recently announced a GST rate cut, moving products from the 12% and 28% categories to 5% and 18%. At the same time, e-commerce platforms are aggressively promoting No-Cost EMI options. These offers seem tempting, allowing you to buy now, pay later, and supposedly without any extra cost.
But is it really as simple as it looks? Let’s understand how no-cost EMI works before you make your next purchase.
How Does the No-Cost EMI Scheme Work?
A no-cost EMI is a payment plan that allows you to split the cost of a product or service into monthly installments, without explicitly paying interest. However, there’s more to it than meets the eye. Typically, it works in two ways:
Discount equal to the interest rate
The retailer offers a discount equivalent to the interest that would usually apply on a regular EMI. This way, you pay the same price overall but spread it across months.
Example: A smartphone priced at Rs 24,000 may be offered at Rs 4,000 per month for six months under no-cost EMI. The total outflow remains Rs 24,000 because the retailer has absorbed the interest in the form of a discount.
Interest built into the product price
In this case, the retailer inflates the upfront price to cover the interest. While you don’t see an additional interest charge, you still end up paying more.
Example: A laptop priced at Rs 50,000 may be listed at Rs 52,000 under no-cost EMI. You pay Rs 8,666 per month over six months, without a separate interest component, but at a higher overall cost.
Additionally, these offers often come with eligibility conditions such as a good credit score, a sufficient credit card limit, and minimal documentation.
Is the No-Cost EMI Option Worth It?
No-cost EMIs look appealing on the surface, but it’s important to weigh the risks.
Hidden charges: Banks or retailers may levy processing fees or penalties for early closure. For example, if a washing machine on no-cost EMI comes with a Rs 1,000 processing fee, it’s no longer free.
Inflated product prices: The cost of interest is often built into the product price. A phone that costs Rs 20,000 in cash might be listed at Rs 21,000 under no-cost EMI.
Risk of overspending: Easy EMIs may tempt you into unnecessary purchases, like opting for a high-end TV that strains your budget.
Impact on credit score: Missing even one EMI can hurt your credit history and reduce your chances of getting loans at favourable rates later.
How to Choose the Best No-Cost EMI Plan
A no-cost EMI can be useful if you genuinely need the product and are disciplined with repayments. To make a wise choice:
Check eligibility: Ensure you meet the conditions for the bank, card, or retailer.
Read the fine print: Watch out for hidden costs like processing fees or foreclosure penalties.
Compare offers: Different banks/platforms have different deals, always compare.
Budget carefully: Check if your monthly income comfortably supports the installments.
Pay on time: Timely payments save you from penalties and protect your credit score.
Know cancellation rules: Cancelling midway may attract fees, adding to your expenses.
No-Cost EMI vs Regular EMI: What’s the Difference?
Should You Opt for a No-Cost EMI or Pay in Full?
If you have the money available, it’s almost always better to pay in full. Cash buyers often get 8–10% discounts or cashback offers, reducing the overall cost. Banks also tie up with brands to offer extra savings on select cards.
If you still prefer a no-cost EMI, calculate the net difference between the EMI cost and upfront payment. Only opt in if the installments fit comfortably into your budget.
Wrapping Up
The Reserve Bank of India (RBI) has clarified that the concept of a true ‘zero percent interest’ does not exist. In reality, the cost is either embedded in the product price or recovered through fees.
No-cost EMI offers are usually limited to select products and short tenures. Early repayment often comes with charges, and missing even one EMI can impact your credit history.
In short: a no-cost EMI is rarely free. Before opting for it, compare it with upfront payment and ensure it makes sense for your financial situation.
*The article is for information purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
