Is no-cost EMI really cost-free? Read terms and conditions carefully for hidden charges and missed discounts

With the government cutting the Goods & Services Tax (GST) rates last week, shoppers are now awaiting the upcoming sales season. Both the Great Indian Festival by Amazon and the Big Billion Days Sale are coming soon; dates are yet to be announced, but experts say it would most likely come after 22 September, the date on which the new GST rates become effective. While discounts are a trademark for such sales, the spotlight also comes onto the no-cost equated monthly instalment (EMI) option.

What is a no-cost EMI?

A no-cost EMI is a payment facility where, instead of paying the full price of a product in one go, buyers split the cost into smaller monthly instalments, and the seller positions it as “interest-free.” For instance, if a phone costs Rs.24,000, instead of paying the entire amount at once, you could pay Rs.2,000 per month over 12 months. You pay exactly the sticker price, without any additional interest charged on the instalments.

This has been among the most favoured ways for many to buy appliances as well as electronics and mobile phones, as you do not have to pay a high upfront price. This means that you can afford things that you otherwise couldn’t. For one, you can do more aspirational spending without disturbing your savings. It also gives you more room for liquidity and flexibility to spend the money elsewhere. There’s some psychological relief in that only small payments are going compared to bigger spends. Of course, this holds true if you do not overspend.

Take the case of Mumbai-based Shreyam Shah and Noida-based Mohommad Imran. Imran bought a Google Pixel phone last year, priced at around Rs.49,000, while Shah purchased a Bosch dishwasher worth nearly Rs.65,000. Both chose the no-cost EMI route during the festive sales.

Imran opted for the longest tenure available, 24 months, to keep his monthly outgo as low as possible. Shah, on the other hand, chose a 12-month plan. However, this raises an important question: Is the widespread belief that no-cost EMIs carry no cost at all truly accurate?

How does the math work?

First things first: “There is no such thing as a free EMI. Somebody always bears the cost—either the manufacturer, the retailer, or the consumer through fees or lost discounts,” says Satish Mehta, Founder, Athena CredXpert. In a 2013 circular, the Reserve Bank of India (RBI) stated that banks should not engage in any practice that would distort the interest rate structure of a product, as it “vitiates transparency in pricing mechanism” and prevents customers from making informed decisions.

Many times, the interest element has been disguised, passed on to the consumer in the form of processing fees or by adjusting it into the price and applicable interest rates. That said, there are instances where companies themselves bear the cost.


Mohommad Imran, Noida

• He purchased a Google Pixel 9A smartphone for Rs.49,000.
• Chose the no-cost EMI option through his SBI credit card on Amazon.
• Picked the maximum tenure available: 24 months.
• The phone’s listed MRP was Rs.49,000.

Remark: Normally, if he had paid upfront, he might have received a discount of Rs.8,000, bringing the cost down to around Rs.41,000.

Vipul Patel, Managing Director and Founder of Mortgageworld.in, explains how the math works: Imagine you’re buying a smartphone worth Rs.60,000 during festive sales. The seller promises that instead of paying upfront, you can split the cost into nine monthly instalments of Rs.6,667— and the total still comes to Rs.60,000. No extra charges, no interest. For most buyers, this appears to be a great deal. But dig deeper, and you realise that the interest hasn’t disappeared. It’s just been shifted around.

Banks and finance companies never lend for free. If they were charging their normal 12% annual interest, those nine EMIs should have been around Rs.7,004 each, adding up to Rs.63,040. That means the bank is giving up around Rs.3,000 in interest on your loan. But instead of waiving off the interest completely, it gets into an agreement with the retailer, who pays this cost on your behalf.

The retailers can afford this because a margin is already built into the price tag. “Most consumer durables operate with margins of 18-25%. That gives brands the room to subsidise interest costs and still make a profit,” says Patel. On a Rs.60,000 phone, a brand typically enjoys a 10% margin, or Rs.6,000. From this, approximately Rs.3,000 can be paid to the bank to cover the interest, while retaining Rs.3,000 as profit. In other words, the so-called “no-cost” is really a subsidy and the brand shares a slice of its margin to make the deal sweet for you.

Win-win for all?

The bank benefits too, gaining valuable data on you as a high-value buyer and an opportunity to cross-sell products like credit cards or personal loans. For the retailer, the payoff is even bigger: customers are more likely to buy—and often upgrade to pricier models—when they see easy, interest-free EMIs. From the customer’s perspective, the math matters less; what matters is affordability. Instead of parting with Rs.60,000 in one go, they only need to set aside Rs.6,667 per month. That makes it much easier for a middle-class family to buy a big-ticket item during Diwali or Christmas sales. The price looks the same, the pain of paying feels lighter, and the festive shopping list gets ticked off faster.

When the cost falls on buyer

When Shah bought his dishwasher from Vijay Sales, the cost was the same with or without the EMIs. In his case, the math worked in his favour. But not every purchase turns out this way. Often, the cost is silently shifted back to the buyer.

At many times, there is a discount that is offered exclusively by the retailer if you pay the amount in one go. Suppose you are purchasing an iPhone listed at Rs.79,000. With an upfront payment, you get it at Rs.73,000. But if you opt for the no-cost EMI option, you pay the full MRP in instalments. Here, the interest is hidden in the form of a lost discount.

Imran experienced this firsthand. The phone he bought was listed at a festive discount, for Rs.41,000, a reduction of Rs.8,000 from its MRP. But because he chose the no-cost EMI option, he lost the discount and paid the MRP instead. He was aware of the tradeoff, but he was still satisfied because he had avoided paying more than the sticker price.

Shreyam Shah, Mumbai

• He purchased a Bosch dishwasher worth Rs.65,000.
• Opted for a 12-month tenure.
• There was no upfront discount on the product, but he received a Rs.5,000 cashback through his credit card.

Remark: In his case, the EMI route did not increase the cost. The cashback was given by bank to engage more customers.

However, Kashif Ansari, an avid credit card enthusiast and professor of personal finance and taxation at the Jindal School of Banking & Finance, says that no-cost EMIs have evolved over the years. He points out that a Samsung Galaxy S24 Ultra smartphone is listed on Amazon at a 37% discount, priced at Rs.84,998. Multiple EMI options are available across banks and credit cards, but the no-cost EMI applies only to Amazon Pay ICICI Credit Card holders. In this case, while the bank does charge interest, Amazon offsets it with an instant discount of Rs.2,216— exactly equal to the EMI interest cost. As a result, you end up paying either three instalments of Rs.28,333 each or six instalments of Rs.14,166 each (with the discount amounting to Rs.3,827). Either way, the total cost of the phone remains the same.


SATISH MEHTA
FOUNDER, ATHENA CREDXPERT
Note: “It’s fine to use EMIs, but don’t over-leverage beyond what you can repay. That’s the golden rule of borrowing.”

Hidden costs and risks

But you must still compare the upfront price against the EMI price before opting for no-cost deals. Here’s why:
The no-cost EMIs are typically for shorter duration loans. If you wish to stretch your payments over a longer tenure, such as a year or two or three or more (if the retailer offers such options), then you will have to pay interest; no-cost EMIs aren’t available. In the above example, your Amazon Pay ICICI Credit Card does not offer the interest-free option if you wish to pay over 9, 12, 18 or 24 months; the other payment tenure options the card offers. Besides, there are several different cards available where you can opt for EMIs, but none offer interest-free options. In other words, you have to pay the full price + interest cost; no discount is available.

Additionally, processing fees, GST on the interest component, and other hidden charges can increase your effective cost. “GST is always on the purchase itself, whether the customer is buying upfront or on loan. But on EMI, there is also GST on the processing fee,” says Tivesh Shah, Founder, Tru-Worth Finsultants.

No-cost EMI is not really cost free

If you purchase a phone of Rs.60,000 on no-cost EMI, you end up paying Rs.7,120 more.


Assumptions
Rs.60,000, pre-GST price. Processing fee is 2% of the invoice amount (price including GST), which many lenders use. If a lender uses a different base (e.g., pre-GST or a flat fee), the numbers will shift slightly, but the direction stays the same: EMI costs more because you lose the Rs.6,000 discount and pay the fee (+ GST on the fee). The discount was only available on paying upfront.

Watch out for the processing fee that credit cards will typically charge you, even if you are opting for the no-cost EMI options. The Amazon Pay ICICI Credit Card charges a processing fee of Rs.299 for the no-cost EMI option on the Samsung phone.

EMIs make large purchases look smaller and more affordable. A Rs.2,000 monthly instalment may feel harmless, but when you stack multiple EMIs across gadgets, appliances, and credit cards, the strain on monthly cash flows adds up quickly. It may also be reflected in your credit report if you miss even one payment.

No-cost EMIs aren’t available on every sale. Ansari advises that those looking to buy mobiles, electronics, or appliances should watch out for Amazon’s Great Indian Festival, Flipkart’s Big Billion Days, Diwali promotions, and Republic Day sales.

Use EMIs wisely. They work best for essential or high-value items where spreading out payments eases liquidity. Avoid them for impulse buys or lifestyle upgrades. And above all, never miss an instalment. The moment you default, penalties and late fees can wipe out the no-cost advantage, and your credit score takes a hit. Missed payments can easily trigger a debt spiral, forcing you to borrow more just to stay afloat. In fact, Ansari adds that foreclosures can also attract penalties.

If you can comfortably pay upfront without denting your savings, that’s almost always the smarter option. “It’s fine to use EMIs, but don’t overleverage beyond what you can repay. That’s the golden rule of borrowing,” Mehta of Athena CredXpert cautions.

The good news is that disclosures have become better over the years, so compare costs and prices and read the terms and conditions before you opt for the no-cost EMIs.