The Real Cost of "No-Cost EMI" Schemes – What You Need to Know Before Buying in 2025

What is a No-Cost EMI?

In simple terms, No-Cost EMI means you pay for a product in monthly instalments without any extra interest. For example, if your mobile phone costs ₹30,000 and the EMI is for 6 months, you’ll pay ₹5,000 per month – and supposedly, no interest.

But here’s the catch: somebody is paying that interest — either you, the brand, or the seller. And in most cases, it’s still coming from your pocket, just hidden in different forms.

How No-Cost EMI Actually Works

There are three common methods used to offer these schemes in India:

1. Discount Adjustment Model

Let’s say a phone originally costs ₹30,000 but has a discount of ₹3,000 if you pay upfront (final price: ₹27,000). But if you go for No-Cost EMI, the retailer removes the discount and charges you the original ₹30,000. That ₹3,000 “saved” is quietly used to cover your interest.

You don’t pay interest officially, but you also lose the discount.

2. Subvention Model (Brand Pays)

Here, the brand or seller pays the interest to the bank or NBFC. For example, Samsung or LG may have a deal with a finance company like Bajaj Finserv. But to recover that cost, they inflate the product price or reduce other offers.

You may not see the interest on paper, but it’s built into the product’s price.

3. Banking Tie-Up Model

Often, banks offer no-cost EMI only on specific credit cards or debit cards. But behind the scenes, processing fees, GST on interest, or hidden costs are added. You may also lose other cashback or reward benefits by choosing EMI over upfront payment.

The Hidden Charges You Don’t Notice

Let’s break down what many customers fail to see:

🔸 Processing Fee – Some finance companies charge 1% to 3% of the product value just to start the EMI.
🔸 GST on Interest – Even when interest is waived, GST is charged on the supposed “interest amount.”
🔸 Foreclosure Charges – If you want to pay off the EMI early, extra charges apply.
🔸 Loss of Discounts – As mentioned earlier, upfront discounts are often removed.
🔸 Penalties for Missed Payments – One missed EMI = late fees + negative impact on your CIBIL score.

A Real-Life Example

Let’s say you’re buying a laptop worth ₹60,000.

Option 1 – Upfront payment: ₹55,000 (after discount)
Option 2 – No-Cost EMI for 6 months: ₹10,000/month = ₹60,000 total

On paper, it looks like a simple payment split. But in reality:

You paid ₹5,000 more than the discounted price
You might have missed out on card cashback
You may have paid a processing fee or GST on interest

So, the EMI may be “no-cost” in name, but you still pay more in the end.

The Psychology Behind No-Cost EMI

Marketers know one thing: Indians love “free” offers. No-cost EMI taps into our emotions.

It makes expensive products look more affordable. A ₹50,000 phone feels easier to buy when it’s ₹5,000 per month. But this leads to impulsive buying and overspending.

People also don’t realize how many EMIs they’re already paying — for phones, ACs, washing machines, etc. Within months, you could have 5–6 active EMIs, eating into your salary and creating a cycle of debt.

The Risk: One Missed EMI Can Hurt You

While these schemes look convenient, they come with strict repayment terms. Missing even one EMI can lead to:

Late payment charges
Negative CIBIL score
Harassment from recovery agents (in some NBFC cases)

Many people fall into this trap by not reading the fine print.

Smarter Alternatives to No-Cost EMI

If you’re planning a big purchase, here are a few better options:

1. Save and Wait

Create a goal and start a small monthly SIP or recurring deposit. Wait 3–6 months and buy the product with your own money. No stress, no interest.

2. Use Credit Card Offers Wisely

Instead of EMI, look for instant discounts, cashback, or reward points on your card. Often, these give you better savings than EMI options.

3. Read Terms Carefully

If you still want to go for no-cost EMI, always:

Compare prices across platforms (some inflate MRPs)
Check for processing fees, GST, and penalties
Confirm total payment amount before agreeing

Final Thoughts: Think Before You Swipe

No-cost EMI is not always a scam, but it’s also not as “free” as it seems. It’s a clever marketing trick that hides extra costs and encourages emotional spending.

Before falling for the “buy now, pay later” trap: