No Cost EMI: Is It Really Free or Just a Marketing Trick? Here’s How Companies Recover the Charges

By Siddhi Jain | Sep 22, 2025, 11:57 IST

The phrase “No Cost EMI” has become one of the most popular sales pitches in India’s retail and e-commerce market. Whether you’re buying a smartphone, television, or home appliance, you’ll likely come across an option to pay in easy, interest-free installments. At first glance, this seems like a great deal—an opportunity to buy now and pay later without paying a single rupee in extra interest.

But the reality is very different. Industry experts say that there is no such thing as a completely “free” EMI. Hidden costs are often bundled into the product price or added as processing fees. In other words, while customers believe they are saving money, they might actually end up paying more than they realize.

How “No Cost EMI” Works in Reality

According to financial consultant Deepak Kumar Jain, founder-CEO of TaxManager.in, the term “No Cost EMI” is misleading. When you purchase a product on EMI, the bank or NBFC (Non-Banking Financial Company) charges interest as usual. However, instead of showing it openly, the company adjusts this cost in one of two ways:

Price Manipulation – The product is sold at full MRP without offering discounts that are otherwise available on outright cash purchases.
Additional Fees – A “processing fee” or GST may be added quietly, which compensates for the interest you thought you weren’t paying.

As a result, while customers believe they are not paying interest, the cost is already embedded in the final deal.

Example: Losing the Discount Advantage

Let’s take a simple scenario. Suppose a product’s actual price is ₹20,000. During a cash sale, retailers may offer a discount of ₹3,000, reducing the price to ₹17,000.

However, under a No Cost EMI plan, the same product is billed at its full price of ₹20,000 and then divided into installments. The buyer believes they are saving money through interest-free EMIs, but in reality, they are losing the discount that was available on cash purchase. Essentially, the hidden cost is ₹3,000, cleverly masked under the EMI option.

Role of Banks and NBFCs

These offers are generally tied to credit card EMIs or NBFC consumer loans. Credit card issuers and financing firms often advertise that they don’t charge customers any interest. But the truth is, their revenue comes from retailers, who either inflate the product price or share a margin with financiers.

Thus, even though the EMI seems “no cost” to the customer, the banks and NBFCs still earn profits through the backend arrangement.

What Customers Should Check Before Opting for No Cost EMI

Before falling for the “interest-free” tagline, customers should carefully analyze the deal. Here are a few important checks:

Compare Prices – Always look at both the cash price and EMI price of the product. If the EMI option is being billed at full MRP, you may be missing out on discounts.
Look for Processing Charges – Some No Cost EMI schemes include processing fees or GST on interest components. These can increase the effective cost of the product.
Read Terms and Conditions – Check whether the financing partner is charging penalties for pre-closure, late payments, or hidden service charges.
Evaluate Affordability – If you can comfortably pay in cash and benefit from discounts, that might be the smarter option. EMI should only be chosen if it truly eases your cash flow without adding hidden costs.

Is No Cost EMI a Scam?

While calling it a “scam” may be an exaggeration, it’s certainly a clever marketing tactic. Companies use it to lure customers who hesitate to make a lump-sum payment. The concept benefits three parties:

Retailers, who can sell products at full price.
Banks and NBFCs, who earn margins or processing fees.
Customers, who get the convenience of spreading payments, though often at the expense of hidden charges.

The key takeaway is that No Cost EMI is rarely ever truly free. Instead of assuming zero interest, customers must recognize that the cost is simply disguised—either by inflating the product price or by reducing the discounts they might otherwise receive.

Final Word

“No Cost EMI” is one of the most effective marketing tools in India’s consumer market, but it comes with its own fine print. While it does provide convenience and affordability for many, buyers should not blindly believe that it’s entirely cost-free.

Before opting for this payment mode, always do the math—compare the cash price, EMI price, and hidden charges. Only then can you decide whether the so-called No Cost EMI is truly worth it, or whether paying upfront is the smarter deal.