Updated: November 21, 2025 Is ‘No Cost EMI’ a Deal or a Deception?
The ease of online shopping, fueled by constant discounts, has transformed buying
Overview
The ease of online shopping, fueled by constant discounts, has transformed buying from a festive event into a year-round affair. Among the most popular schemes tempting impulsive purchases, is the No Cost EMI (Equated Monthly Installment).
On the surface, it sounds perfect: a loan with zero interest.
However, the Reserve Bank of India (RBI) has already clarified that the concept of zero percent interest on loans is not valid.
So, how do retailers manage this seemingly great offer? The reality is that the interest is simply hidden or adjusted within the pricing structure.
Despite the name, a No Cost EMI is a loan involving interest payments. The term is misleading because the bank or financial institution does receive interest. The “no cost” illusion is maintained by shifting the interest burden back to the consumer through adjustments to the product’s price or discount.
How It Works: The Hidden Cost
No Cost EMI schemes primarily operate in two clever ways, both ensuring the consumer ultimately pays the interest:
1. When Discounts Are Foregone
Retailers offer a discount equivalent to the total interest amount you would have paid. When you opt for the No Cost EMI, you forgo that upfront discount, and the retailer pays the equivalent amount to the bank to cover your interest.
Let’s break that down.
Let’s say a phone costs ₹30,000. If you pay upfront, the actual price is ₹25,500 after a retailer discount of ₹4,500.
BUT…
If you choose the No Cost EMI, you pay the full ₹30,000 over installments. The discount you sacrificed actually goes directly to the financier as interest on the loan.
2. When Interest is Added to the Price
In this less common scenario, the retailer directly adds the total interest amount to the price of the product.
Let’s assume a product costs ₹15,000. Under the No Cost EMI plan, the retailer markets it for ₹17,250. The ₹2,250 interest is already baked into the price, and you pay this inflated amount in installments. Sometimes, this hidden interest is disguised as a “processing fee.”
Should You Opt for a No Cost EMI?
While not truly “free,” the scheme can be beneficial in certain situations, but only if you are mindful of the fine print:
- Budgeting: It allows you to buy expensive products that are currently beyond your immediate budget or if you simply don’t have enough cash for an upfront payment.
- Credit Building: Availing a short, quick consumer durable loan through this scheme can be a way to start building your credit history and score if you ensure timely repayments.
- Excellent Deals: If you manage to avail an additional discount on top of the No Cost EMI, it might genuinely be a good deal.
Crucial Cautions:
- Read the Fine Print: Check for hidden down payments and processing fees.
- Credit Card Limits: If the deal is attached to a credit card, the entire transaction value gets blocked against your credit limit, even though you only pay the monthly EMI.
- Availability: These schemes are not offered on every product and may be exclusive to specific banks or financiers.
Conclusion
No Cost EMI is a convenient financial tool, but it’s not a free pass. It requires sharp financial literacy. By understanding that the interest is simply hidden in the price or discount, you can use the scheme strategically to manage your budget or build credit, rather than letting clever marketing push you into unnecessary or costly debt.
