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Utility Desk, New Delhi. Nowadays, the option of ‘No-Cost EMI’ has become the default while purchasing mobile, laptop or furniture on e-commerce platforms. The promise of paying in easy installments without interest sounds great, but have you ever wondered why banks or sellers will give you a free loan?
The reality is that what you think of as ‘zero percent’ interest, you are paying the price for it in some other form or the other. Let us know how the mathematics behind this ‘no-cost’ works.
If there is no interest, then where do the companies collect the money from?
According to Deepak Kumar Jain, Founder and CEO of TaxManager.in, no-cost EMI does not mean that interest has ended. Actually, the interest amount in this Discount Is adjusted as. Suppose the bank wants interest of Rs 3,000 on a phone worth Rs 50,000. In such a situation, the seller deducts a discount of Rs 3,000 from the price of the phone and gives you a bill of Rs 47,000. The bank charges you the entire Rs 50,000 and keeps the difference of Rs 3,000 as interest.
That ‘hidden’ discount game that you can’t see
Often, by choosing no-cost EMI, you lose the benefits that you get on full payment.
Disadvantages of cashback: One-time payment on many platforms offers direct discount or card cashback of ₹4,000 to ₹5,000.
EMI terms: As soon as you opt for EMI, that instant discount disappears or reduces significantly. That means, due to installments, you have already paid more for that product.
Big blow to processing fees and GST
No-cost EMI includes not only interest but also some other charges which are revealed when the first credit card statement arrives:
Processing Fee: Banks charge fees ranging from ₹199 to ₹500 for converting purchases into EMIs.
GST hit: Even though the interest has been adjusted, 18% GST is charged on the notional interest portion charged by the bank. These small charges add up to make your ‘free’ deal expensive.
Bad effect on credit score
Every no-cost EMI is technically like a ‘personal loan’.
Credit Exposure: If you have multiple EMIs running simultaneously, your credit exposure increases.
Impact on future loans: Due to high loan liability, your eligibility while taking home loan or car loan may reduce in future. RBI has also repeatedly warned that excessive dependence on consumer credit for small expenses is not a good idea.
[Image showing a credit card statement with hidden charges like GST and Processing Fee highlighted in red]When to choose no-cost EMI?
Choose this only if you are not getting any extra discount on full payment and your cash flow is getting affected. Remember this formula before purchasing: Total Payment (EMI x Month) + Processing Fee + GST = Actual Price.
