What is No Cost EMI and How Does it Work?

For the past few years or so, especially during pandemic and the post-pandemic world, there has been a sharp increase in demand for No Cost EMIs. Consumers have been opting for No Cost EMIs like never before to buy various products of their choice. So, how different are no cost EMIs compared to regular EMIs? 

No cost EMI means you only pay the price of the product in parts. But does that mean that banks and other no cost EMI card issuers and facilitators aren’t making money out of this service? Let’s dive a bit deeper.

What Does No Cost EMI Mean?

No Cost EMI means you purchase an item on EMI and repay the amount without any additional interest, meaning you are paying only for the actual cost of the product. As a result, no-cost EMI is a lucrative repayment option helping you tide over a high-cost purchase without straining your finances. 

However, you need to be aware that no-cost EMI does not mean that the price quote is devoid of interest amount. Confused? Well, there are no interest charged on paper when you purchase an item at no cost EMI. However, if you have noticed, no cost EMIs are available mostly on select products.

The retailer actually considers the interest rate while setting the price of a product coming with a No Cost EMI. A retailer or a lender could also sell a No Cost EMI product by not offering any discount on the product to make maximum profit. 

Difference between No Cost EMI and Standard EMI

While purchasing new electronic gadgets like smartphones, televisions and laptops, you may have come across the terms EMI and No Cost EMI. Let us know the difference between No Cost EMI and a standard EMI:

Difference between No Cost EMI and BNPL (Buy Now Pay Later)

A Buy Now Pay Later (BNPL) scheme is a short-term financing option for buyers that lets them purchase an expensive product and repay the money in instalments later. They sound very similar to No Cost EMIs so let us know the difference between the two:

But why go for short-tenure EMIs when you have the option to set your repayment tenure as per your convenience? Avail cash loans of up to Rs.20 lakh in a few minutes and buy any item of your choice stress-free. You have the luxury to repay the amount in 72 months! Download the Navi app today and enjoy 100% hassle-free and paperless loan process.

How Does No Cost EMI Work?

Besides knowing what is no cost EMI, you should have an idea of how the no-cost EMI scheme works. Customers availing of no cost EMI do end up paying some extra amount while purchasing a product. No cost EMI works on two concepts. The first concept is dodging the discount to compensate for the interest rate, and the other method includes adding the interest component to the product’s original price.

1. Equating discounts with interest rate

You are supposed to get a certain discount on your purchase under a traditional monthly instalments plan. However, while availing of no-cost EMI, you will not be entitled to any such discounts. You will have to pay the entire price of a product. 

For instance, you might get a discount of 10% on purchasing a television set worth Rs. 25,000. But, in a no-cost EMI, the retailer is not going to provide any discount to you. Hence, you will pay the entire price of the product under the no-cost EMI tag.

2. Interest amount is built in the product price

In this method, the retailer incorporates the interest component into the actual product cost and makes you pay for it under the flexible repayment option and no-cost EMI norms.

For instance, you are going to buy a smartphone for Rs. 15 000. The retailer incorporates interest charges and sets the selling pricing of the mobile phone at Rs. 17000. You pay the extra amount of Rs. 2,000 under the no-cost EMI tag.

Advantages of No Cost EMI

Here are the notable benefits of availing of a no-cost EMI that will help you manage the monetary burden that generally comes your way while making a hefty purchase.

• With no-cost EMI, you can easily make big-ticket products.
• You can manage your cash flow constraints easily while buying costly products.
• Furthermore, availing no cost EMI will significantly boost your CIBIL score. Opting for smaller loans at no-cost EMI will help you boost your credit score, provided you repay on time. 
• You can conveniently pay for the cost of a product over a few months. 
• For purchasing an item on no-cost EMI, you can opt for online and offline payment modes. Additionally, at present several e-commerce platforms extend this service to their customers.

Limitations of No Cost EMIs

Here are the limitations which you will experience while availing of a zero cost EMI:

• Under the no-cost EMI option, the cost of borrowing is higher eventually. Furthermore, the interest payable is inclusive of GST.
• While returning a product, you still have to bear the interest rate.
• You must also pay a non-refundable processing fee on buying certain things. Additionally, you have to pay service tax and other associated charges to the bank.
• No cost EMI choice is applicable only if one uses a credit card. 
• Furthermore, you cannot avail of zero-cost EMI on all the products you desire to buy. 

Hence, it is imperative to know the specific details related to no cost EMI to make the most out of this repayment method. Though no cost enables you to buy exorbitant products with ease, you should make sure that you are not buying or availing of unreasonable products. It is also applicable when you avail any credit option. Avoid choosing a loan amount that strains your future finances.

How to Avail No Cost EMI?

Many e-commerce websites offer the facility of No Cost EMIs for almost all high-priced products they sell. However, such schemes apply only to electronic gadgets and some select furniture in offline stores. If you wish to avail a No Cost EMI, you need to follow the steps below:

Step 1: Choose the product you wish to purchase from an e-shopping platform offering No Cost EMIs.

Step 2: Go through all the instalment options if you see that the e-commerce website is offering No Cost EMI on that product.

Step 3: Select the EMI option that suits your requirements and finances.

Step 4: Enter your credit card details on the payment page.

Step 5: The principal amount will automatically be blocked on your credit card during checkout.

Step 6: You will receive a complete breakdown of your payments in your registered email ID. 

Now that you know how you can get No Cost EMsI from e-commerce websites, let us check the process for offline purchases:

Step 1: While purchasing the item, check if the shop offers a No Cost EMI on its products.

Step 2: Once you have made sure that this facility is available, you need to choose a tenure within which you will have to repay the credit. Usually, the repayment tenure for offline purchases ranges between 3, 6,9 and 12 months.

Step 3: The shop will give you a few papers to fill out and sign. This can ask for information like your name, address, etc.

Step 4: You will need to submit a copy of your ID proof and a copy of your address proof.

Step 5: After completing the documentation process, you can take the product with you.

How Does a Credit Card Work for No Cost EMI?

In the case of a No Cost EMI, the buyer will not have to pay any interest. When you purchase an item with your credit card, the bank will automatically deduct the amount from that card to make the payment. 

So let’s understand this with an example. A credit card has a credit limit of Rs. 1 lakh for a three-month No Cost EMI. After you make a purchase worth Rs. 30,000, the limit is lowered to Rs 70,000. 

Now, you need to pay back the amount. The EMI plan for a product you purchase online is Rs. 10,000, and you will have to pay this amount within 3 months and the interest is 13% which will amount to Rs 638. 

The retailer will discount the interest amount, so you have to pay Rs. 29,362. You will have to repay the interest to the bank and the rest of the amount to the retailer. Thus, you will pay an EMI of Rs. 10,000 every month.

How to Repay No Cost EMI?

When you choose to pay a No Cost EMI for a product, the price of the product is divided into monthly instalments. For the previous example, you have to pay an EMI of Rs. 10,000 every month. Of this amount, the bank will receive the interest component, and the retailer will receive the rest.

The following is an example of the breakdown of the outstanding EMIs:

• 1st EMI: Rs. 318 (interest) + Rs. 9,682 (principal)
• 2nd EMI: Rs. 213 (interest) + Rs. 9,787 (principal)
• 3rd EMI: Rs. 107 (interest) + Rs. 9,893 (principal)

RBI Statement on No Cost EMI

Zero-cost EMI levies no interest rate on customers. However, it comes with short-term tenure and with additional charges. Under no-cost EMI scheme, customers end up paying more interest than what they have perceived in the beginning.

In a circular of 2013, the Reserve Bank of India stated that the concept of no-cost EMI is invalid. Hence, RBI has put a stop to no-cost EMI to protect customers’ financial future and bring transparency to the pricing structure of the product. 

Here’s the effect of no-cost EMI ban by the RBI:

• Debarring no-cost EMI scheme has secured customers from paying extra interest components while purchasing a product.
• However, the condition is not the same with consumer goods manufacturer. After the RBI update, the sale percentage has degraded.
• With the degradation of the sale percentage of consumer goods, overall sale in the country has also been disrupted.

Final Word 

No-cost EMIs enable you to purchase high-end products conveniently. You don’t have to pay the entire cost of products in one go. However, while choosing no-cost EMI for purchasing a product or availing of any credit option, you should also consider the down payment and other hidden charges. 

FAQs on No Cost EMI