In present times filled with conveniences, the term ‘No Cost EMI’ has emerged as one of the most common in the online shopping world. Customers can buy expensive products without having to pay for them in full at once. But is that really what it sounds like? Let us go deep into the specifics to uncover the truth about No-Cost EMI, learn how it can be distinguished from regular EMI, and also examine what do banks and consumers stand to win or lose in the process.
Table of Contents
What is EMI?
Before diving into No-Cost EMI, it’s important to grasp the fundamentals of Equated Monthly Installments (EMI). EMI is a repayment method that enables you to pay off a loan over a specified duration by making consistent monthly payments. This amount consists of the principal (the product’s cost) and the interest (the fee charged by the lender for the loan).
For example, if you buy a product worth ₹30,000 on EMI for 12 months with a 10% interest rate, you will pay the principal (₹30,000) plus interest (₹3,000), leading to a total of ₹33,000. This amount is then divided into 12 monthly payments of ₹2,750.
What is No Cost EMI?
A No Cost EMI allows customers to purchase a product or service by paying in installments without incurring any extra interest. In other words, the price you see is the total amount you pay, spread out over the payment period. For example, if you buy a smartphone priced at ₹30,000 on a No-Cost EMI plan for 12 months, you would pay ₹2,500 each month, and the overall cost stays at ₹30,000.
Does it sound too good to be true? That’s because there are some details you might want to consider.
How does No Cost EMI work?
Retailers and banks work together to provide No-Cost EMI options. Typically, retailers cover the interest expense by giving a discount that matches the interest on the item. For instance, if a 12-month EMI would usually result in ₹3,000 in interest, the retailer might give the bank a ₹3,000 discount upfront, allowing the customer to pay no additional cost.
However, this doesn’t always mean the customer saves money. Often, the original price of the product is inflated to absorb the cost of interest, or other hidden fees may apply.
No Cost EMI vs EMI Regular: Key Differences
Imagine you’re purchasing a smartphone priced at ₹30,000, and you have the choice between No-Cost EMI and Regular EMI options for 12 months. For this scenario:
- The Regular EMI has an interest rate of 12%.
- The No-Cost EMI comes with a processing fee of ₹500 and no interest but may include GST on the interest (18% of ₹3,600 = ₹648).
- The Regular EMI has a processing fee of ₹500.
Example: Purchasing a Smartphone (₹30,000) – 12 Months EMI
| Parameters | No-Cost EMI | Regular EMI |
| Product Price | ₹ 30,000 | ₹ 30,000 |
| Interest Rate | 0% | 12% |
| Processing Fee* | ₹500* | ₹500* |
| Interest Amount (12 months) | ₹ 0 | ₹ 3,600 |
| GST on Interest (18%)** | ₹648** | ₹ 0 |
| Total Cost (With Fees) | ₹30,500 + ₹648 = ₹31,148 | ₹30,000 + ₹3,600 + ₹500 = ₹34,100 |
| Monthly Installment | ₹31,148 ÷ 12 = ₹2,595.67 | ₹34,100 ÷ 12 = ₹2,841.67 |
** As per Govt. Norms
The Bank’s Perspective
Banks have tie-ups with e-commerce giants like Amazon, Flipkart, and others to popularize No-Cost EMI during sale seasons including the Great Indian Festival and Big Billion Days. These sales attract millions of customers with claims of scale discounts on high-value consumables such as electronics, mobile phones, and home appliances. Perhaps, one of the most important factors that make these events appealing to buyers is the No EMI option. It enables customers to pay in installments without attracting extra charges, making purchasing expensive assets easy.
These giant discounts make customers puzzled over how Amazon, Flipkart can afford to provide such huge discounts in these mega sales along with NO-Cost EMI. In truth, the price for EMI interest is normally borne by the retailer or manufacturer, and some of the rebates are balanced by banks through association, to the advantage of all.
The misconception that no cost EMI is a loss-making proposition does not hold water from the bank’s perspective. The interest that is normally levied to clients is normally borne by either the retail or manufacturing establishments. It helps to make the buying process more convenient for consumers and also avoids revenue loss for banks. Moreover, some of the banks levied processing fees or GST on interest amount which is paid by the customer. In this manner, banks still derive the benefits while the issue of interest-free remarks outskirts the EMI base.
These mega sales events also lead to a massive increase in credit card usage for products on EMI and revenue for the banks. While enticing customers with No-Cost-EMI many result in opting for the scheme, however, if a customer misses any payment and delays the repayment, banks start charging very high interest on the delayed EMI, thus adding to their income.
Advantages and Disadvantages of No Cost EMI
Advantages and Disadvantages of Regular EMI
No Cost EMI Hidden Charges
While No-Cost EMI schemes appear attractive, they often come with hidden charges that increase the overall cost:
- Processing Fees: In addition to the above, many banks charge a processing fee running between 1% to 3% of the transaction value, and so the total cost rises. This fee is buried and hardly declared but forms part of EMI charges.
- GST on Interest: The EMI is said to be ‘interest-free’ but GST is charged on the interest portion of the amount. This tax is then absorbed directly into the price, and the customer ends up paying more than the advertised price for the product.
- Down Payments: Some of No-Cost EMI plans come with Down Payment, an initial payment that consumers do not factor in every time the offer is being made.
- Foreclosure/Prepayment Charges: Banks also add extra prepayment or foreclosure charges in case you want to clear the loan amount before the scheduled time period, adding up to your expenses.
- Late Payment Fees: Failing to make EMI payments attracts heavy penalties: general penalties and your credit rating may also suffer.
Some of these less visible costs might in fact make No-Cost EMI cheaper than it seems on the surface. There is therefore the need for people to go through the terms and conditions that are being set for such structures before going for such schemes so that they can avoid being sucked into other hidden charges.
Is No Cost EMI good?
It all depends on the retailer’s transparency level as well as the fine print of the bank’s terms and conditions. No cost EMI is an excellent means of breaking down payments without interest costs. However, the actual cost does not always need to be zero. Carefully compare the effective price, avoid hidden charges, and determine if the deal works in your favor.
- No Cost EMI: If you’re purchasing a high-value item and the retailer is transparent about the pricing, No Cost EMI is an excellent option. Just ensure you’re not paying inflated prices or hidden charges.
- Regular EMI: If you want flexibility in tenure, better discounts, or are okay with paying interest, Regular EMI might better suit your needs.
Ultimately, always read the fine print and make informed decisions to ensure you’re getting the best deal for your money.
Frequently Asked Questions
Is No Cost EMI really interest-free?
No Cost EMI doesn’t charge interest directly to the consumer, but there may be hidden costs like processing fees or GST on the interest amount. Retailers often offer discounts equivalent to the interest, or the product price may be inflated to absorb the cost.
How is Regular EMI different from No-Cost EMI?
In Regular EMI, you pay interest over the tenure, making the total cost higher than the original price of the product. In No-Cost EMI, interest is usually absorbed by the retailer, but other fees may still apply, such as processing charges or GST.
What hidden charges should I look out for in No-Cost EMI?
No cost EMI often comes with hidden charges like:
Processing fees (typically 1–2% of the loan amount)
GST on interest (if applicable)
Late payment penalties if you miss an EMI.
Does No-Cost EMI affect my credit score?
Yes, No Cost EMI can affect your credit score just like any other loan. If you make timely payments, your credit score will remain unaffected. However, missing payments can negatively impact your score.
Which is better: No-Cost EMI or Regular EMI?
No Cost EMI is better if you want to avoid paying interest, but you need to watch out for hidden costs. Regular EMI may offer more flexibility in tenure and discounts, but you’ll pay more due to interest. Always check the total cost with all charges before making a decision.
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