The Real Cost of No-cost EMIs

“There are no free lunches in the market,” The quote says it all! Doesn’t it feel strange when we see the phrase “NO EMI COST”? Is something like this really possible? Why would someone distribute free money in the market like this? Hey? Take a deep breath because you will soon discover the hidden truth. Let’s delve into this topic.

Well, you might be very skeptical about this anyway, right? No one is a fool for giving you free money, and trust me, you really don’t find people like that these days. Today’s businesses don’t want to give up a single opportunity to get money out of their pocket, so why this act of kindness?

But you must be thinking that you’re sure those giant Bajaj Finance banners said so. Well, let’s start with the basics.

What is No-cost EMI?

According to these companies, no-cost EMI (monthly equivalent fee) means that if you have taken a loan of a particular amount against any purchase, you do not have to pay additional interest on the principal amount. In other words, no EMI cost means zero cost EMI is charged in addition to the cost of the product. Expect! You believed them for a minute too, didn’t you?

Well, this is just a marketing gimmick from these companies! So, let’s go to the real meaning of the so-called “EMI NO COST”.

The hidden cost in EMI at no cost

Such schemes are aimed simply at luring you into buying more products by falling into the trap of such incentives. The main goal of the plan is to make you spend more! Let’s say you have Rs 10,000 and you are going to buy a new phone that you have been waiting for a long time. But wait! You arrive at the store and see the concept of EMI WITHOUT COST! Now obviously since you do not have to pay all the money at the moment, you will buy the phone at a cost of Rs 15,000 thinking that you will not have to pay any interest on the loan. This is the trick for companies to increase their sales.

Let’s see what the RBI has to say about this. Well, an RBI circular of September 17, 2013, nullifies the concept of zero percent interest: “In zero percent EMI schemes that are offered on outstanding credit card payments, the interest element is often camouflaged and passed on to the customer in the form of a processing fee. “. In 2013, the RBI prohibited banks from offering a “0% EMI scheme on retail products.” The RBI had to take those steps to prevent consumers from falling into these traps.

As mentioned above, no-cost EMI is also a marketing gimmick where, one way or another, the price is borne solely by the customer.

How does this scheme work?

There can be two ways that these schemes work. In the first, the company will eliminate the discount that they would have offered you in the first place, that is, if you have paid the amount in advance. The amount of value goes to the bank or financial institution that provides the EMI service.

The second way is simply that the cost of interest is added directly to the cost of the product. In simple terms, the price of the product shown to you includes the amount of interest.

You may be wondering how these schemes work and the whole process through which they fool us. Don’t worry, we’ve got you covered, and now, let’s move on to the more exciting segment, “how do these schemes work?” or, in other words, “how do they fool us?”

Making the discount equal to the interest

This is one of the most common methods in which this scheme works. Let’s understand this with the help of an example, as there are three parties involved, the victim (say Arrow), the retailer (the innocent seller), and the financial institution.

So Arrow goes to a retail store to buy Rs 10,000 worth of phone. The retailer informs you about the new “No EMI Cost” scheme. Therefore, typically, the interest charged under a three-month EMI plan is 15%, and you would have to pay Rs 1,500 interest if you use EMI.

But this is how cost-free EMI works, actually:


So Arrow actually pays the original price of 10,000 in installments, thinking that he doesn’t have to pay any interest. But the truth is … He is paying those 1500 rupees which is the interest on the loan that he will take to buy the phone. But the difference is that he does not know that he is paying interest; he thinks he is buying the phone at the original price shown to him. The discount amount is taken by the financial institution providing the EMI service and the remaining amount goes to the retailer. Still, this break is not shown to the client. of course!

Arrow will pay 10,000 rupees to the retailer in three installments if he has agreed to that plan. He would have gotten a discount of Rs 1500 if he had chosen to pay the full amount in advance, then the cost of the mobile phone would be Rs 8500 for him!

Adding the amount of interest to the price of the product

In this case, the retailers simply add the cost of interest to the product. Let’s say the price of the phone is Rs 10,000, and Arrow wants to take an EMI plan for three months, and the interest cost will be 1500 as mentioned above. Therefore, the retailer will offer you the mobile phone for 11,500 rupees and will offer you the so-called “free EMI”.

Arrow believes that the original price of the phone is 11,500 rupees, but in reality, he only pays interest of 1,500 rupees. He would have to pay only 10,000 if he paid the amount upfront, as the retailer would have given him a discount in that case.


Then you see that “there really are no free lunches on the market.” No one will give you their money for free. These things are just marketing gimmicks to increase your sales and mislead customers. But we are here to educate you on the same. And we think that to some extent at least, we could have made you aware that you think logically the next time you go shopping.

Leave a Comment