No-Cost EMI Isn’t a Scam… But It Isn’t Magic Either.

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Introduction:

Every year, from late September to October, Amazon’s Great Indian Festival (GIF), Flipkart’s Big Billion Days (BBD), or Myntra’s Big Fashion Festival, etc, light up our Indian homes with great deals, offers, heavy discounts, coupons, and whatnot. 

From laptops to washing machines to the latest iPhone, and everything that’s sold on e-commerce platforms, suddenly starts to feel within our budget. BUT WHY????

That is where the magic word comes into the picture.. Oh, it's not a magic word.. Sorry to break it to you.. Since the truth is a little less sparkly as compared to our festive vibes.. But anyway, coming back to the not-so-magic word which we are going to discuss, is NO COST EMI.



Analytics & Scenarios:

Before directly jumping into something, let us first have a look at the statistics released by Amazon for their GIF sale 2024:

The Amazon Great Indian Festival 2024 has truly become India's greatest shopping phenomenon, smashing all previous records," said Saurabh Srivastava, Vice President - Categories at Amazon India.



Every 1 in 4 customers used the option to make their purchases through EMI options, with 80% of them being no-cost EMI. The year-on-year growth graph is also a reflection of how popular such options are becoming among us, the online shoppers. 


Festive sales like the GIF or BBD are all about discounts, deals, heavy buying, etc, but the way you choose to pay for them can completely change the story. So here’s the real question based on the statistics we have: Is a no-cost EMI truly “free”? Is it actually no-cost? Or is this just the tip of the iceberg?


To understand the whole mechanism, we will first need to know the answers to a few questions:

  1. What is a NO-COST EMI in the mind of a buyer?

  2. What is a NO-COST EMI in reality? Are the consumers really getting benefits from NO-COST EMI?

  3. What if there was no option for NO-COST EMI?


To answer the above, we take the example of a phone having an MRP of 96000, and see certain scenarios for better understanding:





1. ALL THAT GLITTERS… (Scenario 1):

No-cost EMI is an option given to buyers (“as claimed”), which allows them to make the payment of a product in monthly instalments, without any extra charges or interest. So, largely what a consumer would interpret is that if they want to purchase a phone worth 96,000 and they plan to go for a 12-month no-cost EMI option, then they would think that they will have to pay 8000 per month for a year with no extra cost or interest. (as shown in column 2 of the above table).

2. …IS NOT GOLD (Scenario 2):

But in reality, a no-cost EMI is very different from the way buyers tend to perceive it. Very often, the price of the product is manipulated to cover the interest charges or fees, so customers may end up paying more than they expected, and that too unknowingly.

This can clearly be seen in the above example (under column 3), where the buyer ends up paying more than the MRP. The buyer doesn’t pay the interest directly, but the benefit they could have received in cash or discount is silently absorbed into the EMI scheme, when they opt for a no-cost EMI. But then why do buyers choose such options?

Because they seem convenient, even if the purchase isn’t urgent. For instance, buying the above phone on EMI during last year’s sale may have seemed cheaper at that time, only to find that the same product is offered at a lower price today. The perception that EMIs offer lower payments can push buyers to spend more than their actual needs, thereby decreasing their savings and affecting their long-term financial health.

3. THE REAL GOLD, THOUGH LESS SPARKLY (Scenario 3):

If the buyer does not opt for no-cost EMI, but rather pays the entire amount in one go, it gives a good amount of benefit, if compared with the aforementioned scenario. We can clearly see that, effectively, the buyer loses ₹8880 extra (98880-90000) by choosing "No-Cost EMI", which could have otherwise been used to pick up new outfits for the festivals, and then capture those celebration moments using the same phone.  



No-cost EMIs function like a marketing construct. The customer may or may not pay extra interest, but the bank still earns it, which is funded either by the seller or the brand. But, in most cases, it is passed on to the customer only in various hidden ways, as shown in the math done above (hope it was simple and didn’t sound like a finance textbook). 


What are these HIDDEN CHARGES?


  1. The processing fee, which can sometimes go up to 3% of the product amount, includes the additional GST that is levied on the same.

  2. Missing an EMI results in:

  1. Late fees and penalty interest increase the debt burden.

  2. Negative impact on credit score. 

  1. A decrease in the credit limit occurs when the amount gets blocked. 

  2. The loss of the discount, which you get when you buy the product by paying up front.

  3.  The increase in MRP or selling price is done by sellers to adjust their lost interest income. 


In 2013, a circular (attached in the 7th reference below), 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 sold on the pretext of no-cost EMI, as it vitiates the transparency in the pricing mechanism and prevents customers from making informed decisions.


Who bears these HIDDEN CHARGES?


Usually, the burden is shared between three sets of people who are involved in this entire chain:

  • The seller/brand/manufacturer - They often give the bank or financier an upfront discount which is equivalent to the amount of interest which is not shown to the customers. This allows the bank to waive off the EMI interest for the buyer.
  • The bank/financier – Sometimes, banks may absorb a portion of the cost in exchange for a higher EMI option, which means more business for them in the long run.
  • The customer (in most cases) - While the customer feels like they got a “free” deal, the truth is that this discount often reduces the scope for other benefits such as bigger festive discounts, additional cashback, or loyalty rewards, which they would have availed without opting for no-cost EMI. In other words, the customer may end up indirectly paying for it.
In no-cost or zero percent EMI schemes the interest element is often hidden and passed on to the customer in the form of a processing fee. The Reserve Bank of India (RBI) also in its notification said that the very concept of zero percent interest is non-existent. This creates the need for fair practices in the market such that the processing charges and rates charged should be kept uniform and not designed in a way to exploit or deceive the buyers.


It shows nterest rate & discount along with total cost. Also, the note indicates the interest charge by the bank will be considered as a discount.

Conclusion:

This doesn't mean that no-cost EMI doesn't offer advantages. It definitely does, especially to the people who can’t afford to pay for a product in lump sum, and EMI plans allow them to pay the same in smaller chunks. The flexibility aspect makes it beneficial for a good number of buyers.


And that is why customers should always keep a watchful eye not just on the gimmicky "no-cost EMI" banners but also on the less-obvious fees like processing fees, pre-closure fees, prepayment penalties, late payment charges, and other such buried costs that get hidden in the fine print.


Neglecting these can result in undesirable financial pressure and nullify the very intention behind choosing such schemes. After all, prevention is always better than cure, and the same principle holds here as well since spending an additional few minutes reading and comprehending the terms and conditions beforehand can get you out of greater regrets down the line.


In the end, festivals are meant to bring joy, not to get into debt burdens & pay off such debts. Making financial decisions based on one’s own understanding & analysis, instead of being influenced purely by flashy offers or seasonal discounts ensures that your money works for you, not against you.


References:


  1. https://www.hindustantimes.com/technology/nocost-emis-in-flipkart-amazon-sales-may-cost-you-more-because-101757923597861.html

  2. https://economictimes.indiatimes.com/wealth/borrow/loan/personal-loan/personal-loan-vs-savings-smart-ways-to-choose-when-you-need-quick-funds/articleshow/121331056.cms

  3. https://www.aboutamazon.in/news/retail/amazon-great-indian-festival-2024-stats

  4. https://www.businesstoday.in/latest/trends/story/amazon-vs-flipkart-festive-sales-where-middle-class-shoppers-will-save-the-most-this-year-495015-2025-09-22 

  5. https://upstox.com/news/personal-finance/latest-updates/flipkart-big-billion-days-and-amazon-great-indian-festival-sales-how-no-cost-em-is-make-you-pay-more/article-181152/

  6. https://economictimes.indiatimes.com/wealth/borrow/is-no-cost-emi-really-cost-free-read-terms-and-conditions-carefully-for-hidden-charges-and-missed-discounts/articleshow/123730680.cms?from=mdr

  7. RBI Circular - https://www.hdfcbank.com/content/bbp/repositories/723fb80a-2dde-42a3-9793-7ae1be57c87f/?path=/Footer/Useful%20Links/Notices/pdf/Customer%20protection.pdf

  8. https://www.news18.com/business/is-no-cost-emi-good-or-bad-shopping-online-9125527.html 


Blog by Neel Batra and Sudhakar Goswami, M.Com Students

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