Festive Offers And ‘No-Cost EMI’: What Does It Really Mean For Your Wallet?

Festive shopping often comes with an attractive combination: a lower-looking price and the option to pay in easy monthly instalments. No-cost equated monthly instalment (EMI) offers are a familiar part of these sales, particularly for smartphones, electronics, appliances and other expensive purchases.

But the words ‘no-cost’ can make the financing appear simpler than it is. The interest component may be adjusted against a discount offered by the merchant or manufacturer, while processing fees and applicable taxes can add to the final outflow.

The Actual Cost Of A No-Cost EMI

The headline offer is only one part of the calculation. Consumers need to compare what they would pay upfront with the complete amount payable through the EMI, including any additional charges.

Suresh Venkatesan, whole time director and CEO, CRIF Credit Information Services, says, “Consumers should remember that 'no-cost EMI' does not always mean the financing is completely free. In many cases, the interest component is offset through a discount provided by the merchant or manufacturer.”

The comparison also needs to account for discounts and cashback that may not be available when the EMI option is selected. This can change the economics of the purchase even when the monthly instalment looks manageable.

Credit Commitments Beyond The Purchase

The cost of an EMI is not limited to the amount appearing on the shopping bill. Once the purchase is converted into an EMI, it becomes a credit commitment that can also have a bearing on the consumer's available credit.

Venkatesan adds: “When a no-cost EMI is availed of through a credit card, a portion of the card’s available credit limit may remain blocked until the outstanding amount is repaid.”

This becomes relevant when a consumer has more than one EMI running at the same time. Venkatesan also noted that multiple EMI commitments can increase overall credit utilisation, an important factor for lenders when assessing creditworthiness.

Fine Print Can Change The Final Bill

The terms become particularly important when a purchase does not go as planned. A returned product, a missed instalment or a decision to repay early can bring charges or conditions that were easy to overlook at the time of purchase.

“Consumers should understand how refunds are processed if an order is returned or cancelled, whether any processing charges are non-refundable, and how long it may take for the EMI arrangement to be reversed,” Venkatesan says.

Late-payment penalties also need attention, as missed instalments can result in additional charges and can adversely impact the consumer’s credit profile. Those considering early repayment should check whether pre-closure is permitted and whether foreclosure charges apply.

A no-cost EMI can involve more than dividing the product price by the number of instalments. The upfront price, fees, lost discounts, credit utilisation and exit conditions all form part of the financial commitment.