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No cost EMI explained: what is it, is it really no cost, pros, cons, and more

On: January 24, 2021

Amazon India and Flipkart have big sales multiple times a year. Apart from flat discounts, these e-commerce websites also offer bank-specific discounts, exchange offers, and no cost EMI scheme, among others. While the first two are self-explanatory, the no cost EMI requires a little bit of understanding.

Also read: Flipkart SmartPack offer: is it worth buying a smartphone with this new offer, pros and cons, and more

The no cost EMI basically means you don’t have to pay the whole amount up front, instead you can pay small amounts over the next few months. It’s assumed that No Cost EMI means there is no interest involved. However, that’s not true and here we will cover everything you need to know about no cost EMI and whether you should opt for it or not.

What is no cost EMI?

E-commerce websites like Flipkart and Amazon offer no cost EMI on almost all products

E-commerce websites like Flipkart and Amazon offer no cost EMI on almost all products

The no cost EMI payment method was first introduced by Flipkart and soon other e-commerce websites also joined the fray like Amazon India. This payment method allows customers to buy expensive items online through monthly installments, without having to pay the whole price upfront. While it’s convenient not having to pay the whole amount upfront but divide it over next few months, the customer actually ends up paying more for the product than the actual price. Let’s understand how.

How no cost EMI works

The e-commerce websites like Flipkart and Amazon India offer no cost EMI schemes with interest applicable, which is usually 15 percent. The most common method used by e-commerce sites these days is to offer a discount equivalent to the interest amount. To explain briefly, let’s assume a customer wants to purchase a smartphone worth Rs 30,000.

In case the customer chooses a three-month no cost EMI plan where the interest charged is 15 percent, they will have to pay Rs 4,500 as the interest amount. Now, in case the customer chooses to pay the whole amount up front, they will be able to purchase the device for Rs 25,500. But should they choose to pay through no cost EMI, they have to pay the full price i.e. Rs 30,000. In this case, the interest amount is paid to the financier bank and the rest of the amount to the retailer.

On products that are not shown as discounted, the interest amount is added to the price. In the above case, the Rs 30,000 smartphone brought through a 3-month no cost EMI offer will actually cost you 34,500, to be payable over three months. However, this method is not used anymore since RBI released a circular in 2013 banning no cost EMIs. According to the circular, banks can’t offer any no-cost EMI because “the interest element is often camouflaged and passed on to the customer in the form of processing fee.”

Is no cost EMI really no-cost?

As you can already tell by now, the no cost EMI is not really no-cost. In fact, the term no cost EMI is a misnomer since you end up paying either the full price for a discounted product or an additional amount in interest if the product is not discounted. The reason why it’s called no cost EMI is because of the first case we mentioned above in how no cost EMI works.

The e-commerce websites these days discount the product to the exact amount of interest, which brings the amount payable to the actual price of the product. And since no extra charge is levied over and above product price, it’s called no cost EMI.

No cost EMI: credit card vs debit card

These days, merchants offer no cost EMI for both credit and debit card users. In case of no cost EMI on credit cards, the amount payable is deducted from the credit limit of your card. And with each EMI you pay, the credit limit is restored gradually. For example, you bought a smartphone worth Rs 30,000 using a credit card with a Rs 1 lakh limit with a 3-month no cost EMI. The credit limit will reduce to Rs 70,000 and over the period of three months will restore to Rs 1 lakh as you keep paying EMIs.

In case of no cost EMI availed on a debit card, the entire amount is first debited from the bank account. The amount is credited back to the bank account in a few days and the transaction is converted into a loan. Therefore, if you are planning to avail no cost EMI on a debit card, you’ve to ensure that you have the amount already in your bank account.

Banks offering no cost EMI on Flipkart and Amazon

Amazon and Flipkart have tie-ups with multiple banks to offer no cost EMI

Amazon and Flipkart have tie-ups with multiple banks to offer no cost EMI

The top two e-commerce websites in India – Amazon and Flipkart have tie-ups with multiple banks to offer no cost EMI to customers. Let’s take a look at all banks offering no cost EMI and tenure details.

Banks offering no cost EMI on Flipkart

While Flipkart has tie-ups with multiple banks for standard EMI, the no cost EMI is offered only by Flipkart Axis Bank credit card. The customer has the option to choose from three months or six months tenure. The EMI amount varies from product to product and customers need to make a minimum purchase of Rs 3,000 in order to avail no cost EMI optiom.

Banks offering no cost EMI on Amazon

Unlike Flipkart, Amazon India offers no cost EMI with credit cards of various banks. These include Bajaj Finserv EMI card, Amazon Pay ICICI, American Express, Axis, Bank of Baroda, Citibank, HDFC, HSBC, ICICI, IndusInd,  Jammu and Kashmir Bank, Kotak Mahindra, RBL, SBI, Standard Chartered, and Yes Bank. Customers can also avail no cost EMI using Amazon Pay Later.

All of these banks offer tenure of three months, six months, and nine months, except Bajaj Finserve and Amazon Pay Later. The last two offer only six months and nine months. Again the EMI amount varies from product to product.

Advantages of no cost EMI

There’s a reason why online merchants are offering no cost EMI in tie-ups with major banks in the country. Below are the advantages of no cost EMI

  1. Ability to buy expensive utilities without having to pay upfront
  2. Pay conveniently over few months
  3. Flexibility to choose the tenure according to your budget every month
  4. The ability to pay the same amount in installments helps in better budget planning

Disadvantages of no cost EMI

While the no cost EMI certainly is convenient and allows purchasing something that you need but can’t because of financial restrictions, it does come with its set of drawbacks. Let’s take a look.

  1. Cost of paying EMIs is higher than paying upfront
  2. You might have to pay a fixed non-refundable processing fee for the EMI
  3. You will have to GST on interest payable
  4. In case you return the product and get a refund, you will still end up losing money on interest
  5. You may end up buying expensive utilities that you want but don’t need

Should you choose no cost EMI?

In case you are absolutely sure that you need the product you plan to buy through no cost EMI and will be able to pay EMI every month for the tenure, than yes, no cost EMI is a very convenient method to make the purchase. However, if you are not sure of the purchase and were considering it on an impulse, it makes no sense to pay more than what you could have in the first place.

No Cost EMI FAQs

What is meant by no cost EMI?

Technically, no cost EMI is when you pay for a product in installments without any interest charged on it. In simple terms, it means that you pay only the total price of the product, with no extra charges.

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Abhiman Biswas

Abhiman is obsessed with all things tech. His hobbies include reading on his Kindle and clicking random pictures on his phone. His secret superpowers happen to be mixing great cocktails and lip reading. In his spare time, you are likely to find him cleaning his aquascape, researching new species of aquatic fishes and planning which aquatic plants to buy next.