Here is how No-Cost EMIs ACTUALLY work



by Divya Sankar

Are no-cost EMIs really true? That there’s… no additional cost? Not quite. In this post, we’ll tell you how the devil is actually in the fine print.

What are EMIs?

Equated Monthly Instalments (EMIs) refer to a fixed payment amount made from a borrower (you) to a lender (a bank) with interest.

The general idea is that the loan amount i.e., what you borrowed (the principal) and the interest are divided into equal instalments so you can pay off your loan within a predetermined amount of time.

Typically, the interest component in the initial stages of your EMI is higher but as you go along, your interest reduces and your principal goes up. Most lenders, however, provide a few options nowadays to juggle a few parameters to suit your EMI payouts like increasing or decreasing the tenure, paying fixed amounts every month, etc.

SALT Tip: Make sure you discuss this with your lender at the time of making an EMI purchase.

What if there was no interest at all? Enter — No-cost EMIs

There are three different avenues a company might take to generate a No-Cost EMI.

1. When they pay for it.

Companies like Apple often partner with banks and other institutions to bear the interest that would be generated. In other words, companies selling their products pay financial institutions the money that you would normally pay as interest. It’s just a little money to acquire you as a customer because you’re expensiveeee!

2. When you pay for it.

Sometimes, companies just raise their product prices with the interest built in. If, for example, the cost of what you want to buy is 1 lakh with 15% interest, the company will bake in “processing charges” and “ROI fees” that magically turn the total amount into 1.15 Lakhs. This final amount is what you would eventually pay with interest, sold to you as a “No-Cost EMI”.

3. 50–50 babyyyy.

The third option is when companies offer No-Cost EMIs as a limited-time option. In some cases, companies will — as a marketing ploy — say that the no-cost option is available for 6 months out of the 1-year repayment time and in the latter 6 months charge you an exorbitant interest rate to compensate for the first 6 months.

Stores that offer zero-per cent financing presume that many customers will fail to pay off the balance of their purchase by the time the promotional period is over.

Should you opt for an EMI even if you can pay upfront?

No-Cost EMIs are complicated. Although a lot depends on the fine print and the product you’re trying to buy, getting constant, monthly reminders on your outstanding dues can get stressful at times. On the flipside, EMIs give you a little more wiggle room to invest some money that will leave you with some returns by the end of the EMI period.

Either way, EMIs make large financial decisions relatively easier, affordable, and accessible. No-Cost EMIs, on the other hand, may be all about the fine print.

Here, check out some of our other blogs while you’re at it!