No-cost EMI facility on credit cards is quite helpful for consumers who wish to make big-ticket purchases without having to pay the entire amount upfront. Almost all major e-commerce platforms like Amazon, Flipkart, Tata CLiQ, Ajio, etc. offer the no-cost EMI option with leading card issuers like HDFC Bank, SBI Card, ICICI Bank, Axis Bank and others. However, as the name goes, does no-cost EMI truly entail ‘no cost at all’? Let’s find out.
What is no-cost EMI and how does it work?
No-cost EMI is a payment option that allows cardholders to make a purchase and convert it into easy instalments, without incurring additional charges. Unlike regular merchant EMIs that carry interest charges and processing fee, no-cost EMI option ensures that the total amount that you pay remains the same as the original price of the product. In other words, the total cost of the product is equally divided over the chosen tenure. So, for example, if you purchase a smartphone worth Rs. 60,000 under 12-month no-cost EMI option, you will have to pay Rs. 5,000 every month.
For consumers, it is important to understand how no-cost EMI works. Since banks cannot offer interest-free credit, the interest cost in case of no-cost EMIs is borne by the merchant. Usually, interest is applicable on the amount but it is compensated for with an upfront discount of the total interest amount.
Let us understand this with an example.
You purchase a smartphone worth Rs. 30,000 and wish to convert it to 3-month no-cost EMI. Now, say the bank charges a 13.04% interest on the EMI amount, here is how it will work:
| Installment No | EMI Amount | Principal | Interest | Balance Amount |
| 1 | 10,219 | 9,892 | 326 | 20,108 |
| 2 | 10,219 | 9,999 | 219 | 10,108 |
| 3 | 10,219 | 10,108 | 110 | 0 |
Note: Calculation sourced from ICICI Bank’s Credit Card EMI Calculator.
In this case, the total interest charged would amount to Rs. 655. To offset this, the merchant offers you an upfront discount of Rs. 655, effectively reducing the cost of the smartphone to Rs. 29,345.
Even though the EMI is created with the same 13.04% interest, you will still end up paying only Rs. 30,000—the original price of the smartphone. This ensures that while the interest is applied to the EMI, it is balanced out through the upfront discount, making it effectively a “no-cost” arrangement.
Things to Keep in Mind when choosing No-Cost EMIs
While no-cost EMIs are an easy and affordable way to pay for a big-ticket item, there are a few things to keep in mind.
Processing Fee and GST
Though interest is not applicable in case of no-cost EMIs, processing fee may still be levied. Some card issuers may waive off or charge a discounted fee under special promotions or limited-period offers. However, in most cases a flat fee or a small percentage of the transaction amount is charged as processing fee.
Also, card issuers are required to charge 18% GST on any fees and charges accrued. Even though the interest cost is offset by the upfront discount, you may still incur some additional charges due to the processing fee and applicable GST.
Foregone Discounts
Leading merchants like Amazon and Flipkart offer significant discount on several products, especially during offers or sales. However, discounts that are applicable on upfront payment may not be valid when you choose the no-cost EMI option. In such cases, you will have to choose whether you can afford to pay upfront and avail the discount or miss the discount for a convenient pay-off over a few months.
Applicable on Select Products
No-cost EMI offers may be applicable on select products only. Hence, availability is another important consideration. If the no-cost EMI option is not offered on the product you want to purchase, or if the offer is only available through a bank whose credit card you do not own, you may need to explore alternative payment methods.
Should you opt for it?
No-cost EMI can be a convenient way to manage high-value purchases and defer the amount over the period of a few months. However, it is important to consider your monthly cashflow, since no-cost EMIs are usually offered for shorter tenures. It is also crucial to read the fine print – understand the EMI structure, check for hidden charges and compare the offers before choosing.
