Zero-cost EMI offers appear attractive as they promise no additional interest charges beyond the product price. According to reports from TopNews, these offers work by having the bank charge interest on the borrowed amount, but the seller or manufacturer provides an upfront discount to offset this interest cost. For example, if a laptop costs ₹50,000 and the bank charges ₹1,500 as interest over the EMI period, the seller may provide a ₹1,500 discount to make the total cost appear interest-free. However, this discount typically covers only the interest component and may not include other charges. As explained by Mint, when consumers opt for no-cost EMI, the purchase is converted into a loan through credit card, debit card, or consumer durable loan, with repayment in equal monthly instalments. The lender still charges interest, but the difference lies in who pays it - typically the manufacturer or retailer bears this cost by paying interest to the lender or offering an upfront discount equivalent to the interest amount.
Before converting festive purchases into EMI, customers must carefully examine five key cost components that can significantly increase the final price. As reported by Mint, the primary costs include processing fees charged by banks for converting purchases into EMI, which can be a fixed amount or percentage of the transaction value. GST applies to the interest charged by banks, even when sellers provide discounts to offset this amount - for instance, if the bank charges ₹1,500 as interest with 18% GST, the tax component would amount to ₹270. Additionally, lost instant discounts and foreclosure charges for early closure of EMI can substantially increase the total cost. The credit limit impact should also be considered, as converting multiple purchases into EMI can strain overall debt capacity. According to Mint, consumers may have to pay additional charges including processing fees, GST on the processing fee and interest component, platform or convenience fees, and foreclosure or cancellation charges.
Zero-cost EMI can become expensive when customers miss out on instant discounts or cashback available on full payment. According to TopNews, these offers may not include other discounts that are typically available to customers making full payments. As noted by Mint, some retailers may offer a lower price for full payment because the discount otherwise used to offset the EMI interest can be passed on to the buyer. This can result in the customer paying more than they would have paid if they had made the full payment upfront, even after accounting for the EMI discount. For example, if a television is available at ₹50,000 on no-cost EMI but the retailer is willing to offer an additional discount for full payment, consumers should compare the discounted upfront price with the total EMI outgo. The comparison should account for all applicable fees and taxes, rather than just the monthly instalment.
The Reserve Bank of India requires credit card issuers to clearly disclose the principal amount, interest, and upfront discount provided for no-cost EMI offers. As reported by TopNews, these details should be available before the transaction is converted into instalments. Customers should also verify whether there are foreclosure charges for early closure of EMI, whether purchases qualify for reward points, and what happens in case of product returns or order cancellations. According to Mint, it's essential to carefully consider and compare the final purchase price, processing charges, applicable taxes, and any other hidden expenses before proceeding with the repayment tenure. The report emphasizes that a smaller monthly EMI does not automatically mean a cheaper purchase, and recommends keeping overall debt levels in check by adding up existing instalments and essential monthly expenses to decide manageable repayment capacity.
While zero-cost EMI can be useful for essential purchases when customers want to avoid using large savings at once, it should not become a reason to buy products that are otherwise unaffordable. According to Mint, the choice ultimately depends on the price difference and the buyer's financial position. If a retailer offers a meaningful upfront discount and the buyer has sufficient savings without compromising their emergency fund, paying in full may be the cheaper option. On the other hand, no-cost EMI can be useful when there is little difference between the upfront and EMI prices, the additional charges are reasonable, and the monthly instalments comfortably fit the household budget. The key is to compare the total cost of both options rather than getting attracted to a low monthly instalment or a zero-interest label. For Diwali shoppers, the best deal is not necessarily the one with the lowest EMI, but the one that offers the lowest overall cost without putting pressure on monthly finances.
