No Cost EMI Explained: Is It Really Interest-Free or Just a Marketing Tactic?
Consumer Finance Insight: With the festive season around the corner, online shopping platforms and banks are aggressively promoting No Cost EMI offers on smartphones, laptops, TVs, refrigerators, and other high-value products. The term itself sounds appealing—buy now, pay later in easy installments, without any extra cost. But is it truly free of interest? Financial experts suggest otherwise. Here’s a complete breakdown of how No Cost EMI works, what the hidden costs are, and how to choose the right offer to save money.
How Does No Cost EMI Work?
According to Deepak Kumar Jain, Founder and CEO of TaxManager.in, the concept of No Cost EMI is often misunderstood. Technically, banks never lend money without charging interest—after all, that’s their business model. In most cases, the interest amount is adjusted either by the retailer or the manufacturer.
There are two common methods used to structure these offers:
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Discount or Subsidy Adjustment:
Suppose you purchase a smartphone worth ₹30,000 on a 12-month EMI. Normally, at an interest rate of 12%, the total repayment would be around ₹31,800. In a No Cost EMI scheme, the retailer or brand provides a discount equivalent to the ₹1,800 interest. As a result, you only pay ₹30,000 in total, while the company absorbs the cost of interest. -
Hidden Interest Through Price Markup:
In other cases, the interest is cleverly disguised. For example, a phone with a market price of ₹30,000 may actually be available at a discounted cash price of ₹27,000. However, under the No Cost EMI plan, you are billed for the full ₹30,000 without any discount. On the surface, it seems like you’re paying zero interest, but in reality, you’re losing out on a ₹3,000 discount you could have availed with an upfront purchase.
Is No Cost EMI Really Free?
From a technical perspective, No Cost EMI is never entirely free. The interest is either subsidized by the retailer (reducing their profit margins) or indirectly collected from the customer through inflated product pricing.
Additionally, many brands exclude customers from availing other discounts, cashback offers, or coupon benefits when opting for No Cost EMI. For instance, a company may list a product at ₹32,000 with No Cost EMI, while the same product could be sold at ₹30,000 during a direct discount campaign. In such cases, buyers unknowingly pay a higher price.
RBI’s Stand on No Cost EMI
The Reserve Bank of India (RBI) raised concerns in 2013, stating that labeling interest as "zero" could be misleading. Following this, non-banking financial companies (NBFCs) and banks redesigned these offers. Today, while interest is technically charged, it is absorbed by the manufacturer or retailer to create a "no extra cost" experience for the customer.
Things to Check Before Choosing No Cost EMI
Financial planners advise customers to read the fine print before opting for such schemes. Here are some essential checks:
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Compare MRP and Selling Price: Verify whether the EMI offer is based on the actual discounted price or an inflated figure.
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Evaluate Other Offers: Sometimes, upfront discounts or cashback deals are more cost-effective than No Cost EMI.
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Check for Processing Fees: Some banks levy additional processing charges or GST, which increases the overall cost.
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Understand Tenure and Penalties: Clarify how long the EMI runs and whether there are penalties for early repayment.
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Budget Wisely: EMIs may encourage overspending, so ensure the purchase aligns with your financial planning.
Final Word
While No Cost EMI offers convenience and affordability by breaking down large expenses into smaller monthly payments, it is not always as "free" as it appears. The real cost often depends on how the offer is structured—whether the retailer is absorbing the interest or adjusting it in the product’s price.
For savvy shoppers, the golden rule is simple: always compare the EMI price with the upfront cash price and other available offers before making a decision. Choosing wisely can help you genuinely save money while enjoying the flexibility of easy installments.
