No Cost EMI – The Truth You Don’t Know

You buy a TV for Rs. 47000 and the moment you click ‘no cost EMI’ the cost increases by Rs. 3,000. But this is usually payed by Flipkart or Amazon or wherever you’re buying it.

But there is usually a GST of 18% in this extra amount which goes from your pockets

The cashback that you get by paying with your cards is also not applicable with No Cost EMI option

You also need to pay a processing fee to the bank which is usually around Rs. 200

In the world of online shopping, the appeal of No-Cost EMIs (Equated Monthly Installments) is undeniable. Imagine buying that sleek TV you’ve been eyeing without worrying about immediate financial strain. But is the convenience of No-Cost EMI too good to be true? In this blog, we will unravel the intricacies of No-Cost EMIs, exploring whether the advertised benefits hold up under scrutiny.

Understanding the Basics

No-Cost EMI, as the name suggests, implies that the buyer won’t incur any additional charges or interest while opting for installment payments. However, the reality often differs when we delve into the details. Let’s take the example of purchasing a TV for Rs. 47,000. The moment you opt for the No-Cost EMI option, the price may seemingly increase by Rs. 3,000 which is the interest on the EMI option. This is usually covered by Amazon, Flipkart or wherever you’re buying the item.

1. The Hidden GST

While it’s true that online platforms like Flipkart or Amazon absorb the interest cost, there’s a catch – the Goods and Services Tax (GST). The extra amount added to the product cost is subject to GST, typically at a rate of 18%. This means that a significant portion of the so-called ‘no-cost’ is, in fact, coming directly out of your pocket.

2. Loss of Cashback Benefits

Cashback offers from credit cards are a popular incentive for online shoppers. However, when opting for the No-Cost EMI route, these benefits often become null and void. The additional cost embedded in the EMI calculation doesn’t factor into the cashback scheme, leading to a missed opportunity for savings.

3. Processing Fees

Banks, acting as intermediaries in the No-Cost EMI process, usually charge a processing fee. This fee, typically around Rs. 200, is an additional expense that consumers might overlook in the allure of interest-free payments. It’s crucial to factor in this cost when assessing the overall financial impact of choosing No-Cost EMI.

The True Cost of No-Cost EMI:

To understand the true cost of No-Cost EMI, let’s break down the numbers. Suppose you opt for a 12-month No-Cost EMI plan for the Rs. 47,000 TV, with a nominal increase of Rs. 3,000. Here’s how the math plays out:

1. TV cost: Rs. 47,000
2. Additional interest cost (apparently interest-free): Rs. 3,000 (Covered by the ECommerce website.)
3. GST on the additional cost (18%): Rs. 540 (18% of Rs. 3,000)
4. Bank processing fee: Rs. 200

The total additional cost in this scenario is Rs. 740 ( + Rs. 540 + Rs. 200). Also keep in mind the cashback you might be missing out on through, ‘No Cost EMI’ option.

Now, the question arises: Is the convenience of paying in installments worth the extra financial burden?

Analyzing the Trade-off:

No-Cost EMIs provide a convenient way to break down large expenses into manageable monthly payments, but consumers must weigh the benefits against the hidden costs. Here are a few considerations:

1. Convenience vs. True Cost:
   • While the convenience of paying in installments is appealing, consumers must weigh it against the actual increase in the product cost. Assess whether the convenience justifies the additional financial burden.
2. Cashback and Rewards:
   • If you frequently capitalize on credit card cashback offers, opting for No-Cost EMI might not be the most financially savvy choice. Consider the potential loss of cashback benefits when making your decision.
3. Transparent Cost Comparison:
   • Before succumbing to the allure of No-Cost EMIs, compare the total cost of purchasing through this option with the upfront payment. A transparent comparison will help you make an informed decision.
4. Bank Processing Fees:
   • Don’t overlook the processing fees charged by banks. Factor this cost into your calculations to understand the complete financial picture.

Way Forward

In the world of online shopping, No-Cost EMIs may seem like a magic wand that turns significant expenses into manageable monthly payments. However, it’s essential to peel back the layers and examine the true cost associated with this seemingly convenient option.

While No-Cost EMIs offer flexibility, consumers must be aware of the additional charges, including hidden GST, loss of cashback benefits, and bank processing fees. Before opting for the allure of interest-free installments, conduct a thorough cost-benefit analysis to determine whether the convenience is worth the potential financial trade-offs.

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