Everywhere you look today — whether online shopping platforms or retail stores — you see banners that say “No-Cost EMI Available.” This looks amazing. You can buy a smartphone, TV, or laptop today and pay later in easy monthly installments without paying any extra interest. Have you ever thought how this No Cost EMI works? 🤔 Today, in this world, nothing is available for free, then how you can purchase items from Flipkart, Amazon on No Cost EMI. Let’s understand in this article.
What is No Cost EMI?
It is a type of Equated Monthly Installment (EMI) where you buy a product and pay in monthly installments without paying extra interest.
Let’s understand with the help of an example:
Suppose you buy a mobile phone worth ₹24,000 on a 12-month EMI plan. Normally, if the bank charges 12% interest, you would have to pay around ₹25,440 in total, which means ₹1,440 extra as interest. But under a No-Cost EMI scheme, you pay only ₹24,000 i.e. EMI of ₹2,000 each.
You don’t pay the interest in No Cost EMI and thus, this is a win-win situation for You. But how it happens, let’s understand.
How No cost EMI works?
The truth is, there is no such thing as truly free EMI. Banks and retailers always recover their cost in some way, and customers often do not notice it.
No-Cost EMI works in a very simple but hidden manner. In many cases, the seller adjusts the discount that you would normally get if you paid the full amount.
For example, if you purchase a phone of ₹30,000, you may get a ₹2,000 discount for full payment, bringing the price down to ₹28,000.
But if you opt for No-Cost EMI, the seller keeps the price at ₹30,000. You don’t get Rs.2000 discount and sellers use this discount money to pay the interest.
Banks also charge a processing or convenience fee when you select the EMI option. Even though it looks small, it is enough to cover their costs. Another reason banks promote such schemes is to bring you into their ecosystem. Once you are a customer, they can cross-sell other financial products like loans, credit cards, or insurance.
With this method, sellers are also able to sell their products easily with No Cost EMI.
So, is No-Cost EMI really free? Should you purchase items on No Cost EMI?
The answer is no. While it appears to be an interest-free scheme, the cost is cleverly adjusted either in the product price or through hidden charges. You don’t see the interest rate separately, but in most cases, you end up losing the discount that you could have received otherwise. In simple terms, you are not paying extra each month, but you are also not saving as much as you could have.
Can No Cost EMI increase CIBIL Score?
The monthly installments make purchases more affordable and can help you manage your budget better. If you pay all your EMIs on time, it can even help build a good credit history. But there are also clear downsides.
Is No Cost EMI a Scam?
No-Cost EMI is not a scam, but it is not completely free either. It is a clever marketing strategy where the cost of interest is covered in other ways. Before you opt for it, always compare the actual discounted price of full payment with the EMI option and check if there are any hidden fees. The next time you see “No-Cost EMI,” remember — you are not avoiding interest, you are simply paying it in a different form.
