You’ve had your eye on that new phone for months. The price tag? A little steep. But then, a tempting offer pops up—zero-cost EMI. No interest, easy instalments—sounds like a no-brainer. But before you swipe your card, it’s worth asking: is it truly ‘zero cost’? While no-cost EMI schemes seem like a great deal, there’s more to them than meets the eye.
What is No-Cost EMI?
A no-cost EMI lets you split your purchase into monthly instalments without paying extra interest. Unlike regular EMIs, where interest adds to the total cost, these plans claim to charge only the product’s original price. Retailers and banks promote them as a way to make expensive purchases more affordable without increasing your financial burden.
However, the "zero-cost" claim isn’t always straightforward. Some lenders recover costs through processing fees, reduced discounts, or hidden charges. While it sounds like a great deal, understanding the fine print is key to knowing whether you’re truly saving money or just paying differently.
How Does a No-Cost EMI Work?
In a zero-cost EMI plan, banks or lenders typically absorb the interest cost by adjusting the product’s price. Here’s how:
Discount Adjustment – The retailer offers a discount equal to the interest amount, so you pay the original price in instalments.
Processing Fees – Some banks charge a one-time fee, which may offset the savings.
Credit Card EMIs – Many no-cost EMI options work through credit cards, where banks recover costs via hidden charges or reduced cashback benefits.
While the instalments seem interest-free, checking for hidden costs ensures you're not paying more than expected.
Expert Q&A: What are some common loopholes in no-cost EMI agreements that consumers often overlook?
Answered by Akashdeep Garg, a certified finance professional
“Although “no cost-EMI” deals seem lucrative, they may come with hidden costs. Here are some key areas to watch for:
1. Hidden Processing Fees: The merchant or bank may charge an upfront fee that’s not immediately obvious, which can offset the perceived benefit of interest.
2. Inflated Product Pricing: Sometimes, the cost of the product is increased to subsidise the EMI plan, making the “no cost” offer less attractive when you compare overall expenses.
3. Mandatory Bank/Card Tie-Ups: These offers often require you to use specific credit card or bank, limiting your flexibility and possibly denying better benefits available elsewhere.
4. Penalty Clauses: Terms around prepayment or missed payments can be harsh. Even if you pay off the EMI early, foreclosing fees might apply, or default could trigger a conversion to a high-interest rate plan. In credit card’s case, it can go as high as upto 3% monthly.
5. CIBIL Score: In case of missed EMI, your credit score may impact. Poor credit score can raise interest rates or bar you from future lending.
6. Bundled Services or Products: Occasionally, the deal might come with conditions that force you to buy additional accessories or services, thereby increasing your total spend.
7. GST Charge: Although, the interest part is adjusted to make it no-cost EMI, you can be charged 18% GST on the interest part every month. GST is not waived-off in such EMI”
Pros & Cons of No-Cost EMI
A no-cost EMI can make high-ticket purchases more affordable, but it’s not always as "zero cost" as it seems. While it helps with cash flow, hidden fees or lost discounts can affect the actual savings. Here’s a quick breakdown:
| Aspect | Pros | Cons |
| Affordability | Breaks down large payments into smaller, manageable instalments. | Can lead to overspending if not planned properly. |
| Interest Costs | No additional interest on the purchase price. | Retailers may adjust discounts to compensate for the lost interest. |
| Eligibility | Available on various credit cards and financing options. | Requires a good credit score or pre-approved credit limit. |
| Hidden Charges | No visible interest component. | Processing fees, GST, or cancellation charges may apply. |
| Discounts & Offers | Still allows you to get the product immediately. | You might lose out on upfront discounts available for full payments. |
| Credit Card Usage | Doesn’t require immediate full payment. | Blocks your credit limit, reducing available credit for other expenses. |
| Repayment Flexibility | Allows structured payments over months. | Missing an EMI can result in heavy penalties and interest charges. |
| Product Range | Available on electronics, appliances, and more. | Not applicable to all products or services. |
| Loan Tenure Options | Can choose from multiple tenure options (3, 6, 9, or 12 months). | Longer tenure may include additional charges like processing fees. |
| Impact on Credit Score | Timely payments can help build a good credit history. | Defaulting on payments can negatively impact your credit score. |
When Should You Consider No-Cost EMI?
A zero-cost EMI can be a smart choice in certain situations, but it’s not always the best deal. If used wisely, it can help manage expenses without straining your finances. Here’s when opting for it makes sense:
1. While buying high-value products
If you're purchasing expensive gadgets, appliances, or furniture, no-cost EMI can make payments more manageable. Instead of a large upfront cost, you can spread it across months without paying extra interest.
2. When there’s no additional fee
Some zero-cost EMI plans come with processing fees, GST, or hidden costs. If your lender offers a truly no-cost option with no extra charges, it’s a good deal. Always check the fine print.
3. You need to maintain cash flow
If paying the full amount would strain your budget, an EMI option helps keep funds free for other expenses. This is useful for salaried individuals or business owners managing monthly cash flow.
4. When you have a credit card with offers
Many banks provide no-cost EMI offers on specific credit cards. If your bank offers discounts or cashback alongside EMI, it can be a good way to maximise savings while making big purchases.
5. When you can pay EMIs on time
Missing an EMI payment can lead to penalties and affect your credit score. If you have a stable income and can ensure timely payments, a zero-cost EMI can be a hassle-free financing option.
Make the Right Financial Move
A no-cost EMI can be a great tool if used wisely, but hidden charges and lost discounts can sometimes make it less attractive.
Before choosing this option, compare the final cost with other financing methods, check for processing fees, and ensure you can manage the repayments. The right choice depends on your financial stability and spending habits.
If you’re unsure about the best way to finance your purchase, our professionals can help you make an informed decision.
Disclaimer: This information provided is intended for general informational purposes only. It is not a substitute for professional advice or guidance. For personalised recommendations or specific concerns, please consult a certified professional.
