No-cost EMI: A convenient option or a costly affair?

No-cost EMI is essentially a payment plan where the cost of a product is divided into monthly installments without any interest charged to the buyer.

As the festive season begins in August and continues until October, e-commerce giants like Amazon and Flipkart, and retailers roll out enticing offers to boost sales. Among these, no-cost EMI (Equated Monthly Instalment) schemes stand out as a popular financing option, allowing consumers to purchase high-value items without paying extra interest.

E-commerce platforms are already gearing up for Independence Day sales, where no-cost EMI is heavily promoted on electronics, appliances, and even jewellery. These platforms partner with banks and NBFCs (Non-Banking Financial Companies) to make big-ticket buys more accessible, especially when festive spending surges.

The buyers need to be aware of potential pitfalls and the fine print to avoid financial surprises after making a purchase through no-cost EMI schemes.

No-cost EMI is essentially a payment plan where the cost of a product is divided into monthly instalments without any interest charged to the buyer. Instead of paying the full amount upfront, you repay in fixed EMIs over a tenure typically ranging from 3 to 24 months. The "no-cost" aspect means the total amount paid equals the product's cash price, as the seller or financier absorbs the interest.

Here's how it typically unfolds: When shopping on e-commerce sites during festive sales, eligible products display a no-cost EMI option at checkout. You select your bank or credit card (partners like HDFC, SBI, or Bajaj Finserv), choose the tenure, and complete the purchase. The platform or financier instantly approves based on your credit eligibility.

Eligibility usually requires a good credit score, sufficient card limit, and sometimes minimal documentation.

For instance, if you are buying a smartphone worth Rs 50,000 during a festival sale. Opting for a 6-month no-cost EMI with your bank credit card, your monthly installment would be Rs 8,333 (Rs 50,000 ÷ 6). No interest is added, so you pay Rs 50,000 in total. However, the back of the envelope calculations reveal that the merchant discounts the product for cash buyers or builds the interest into the listed price, effectively subsidising the EMI. This is common in festive deals where platforms offer up to 18 months’ no-cost EMI on gadgets.

While marketed as interest-free, missing an EMI can turn costly. Late payment fees vary by provider but often include penalties plus GST. At Amazon, a processing fee of 1.18 percent (including GST) applies upfront, and late payments incur additional charges that impact your credit score. Then Flipkart charge late fees, and repeated defaults could lead to account restrictions. Bajaj Finserv warns that missed payments attract penalties and harm creditworthiness, making future loans harder.

First, it's not truly zero-cost; interest is often baked into the product's price or offset by lost cash discounts. For a Rs 1 lakh product, the "no-cost" might mean paying full price, while cash buyers get 8-10 percent off, effectively costing you Rs 8,000-10,000 extra. Processing fees (1-2 percent) and GST on interest further erode savings.

Second, overextending finances is a major risk — tempting impulse buys during sales can lead to debt traps.

Third, credit utilisation spikes, potentially lowering your score if EMIs exceed 30 percent of your limit. Limited availability to select products or tenures restricts choices, and foreclosure fees (up to 3 percent) discourage early payoff. Missed payments not only incur fees but also damage credit history.

Always check terms as EMIs block your credit limit initially, releasing gradually. Compare with personal loans, which might offer lower effective rates. Opt only if you can afford EMIs without disrupting cash flow — financial experts advise against it for non-essentials. During 2025 festivities, look for genuine deals by comparing prices across platforms.