Should You Take Credit Card No-Cost EMI in India: Is It Worth It?

Planning to make your first No-Cost EMI purchase with a credit card? With easy access to credit cards, fintech platforms, and facilities like buy-now-pay-later (BNPL), it’s easier than ever for Indians to buy on credit. If you look closely, Amazon now highlights monthly instalments over full prices, showing the growing popularity of easy payment plans.

No-Cost EMIs, to begin with, tout 0% interest, which may make you think you can “pay in parts over the next year without incurring any interest.” However, there may be other costs involved. Let’s take a closer look.

What is No-Cost EMI on Credit Card?

No-Cost EMI lets you buy expensive items and pay in monthly instalments through a credit card. While it seems like a free loan, the “no cost” aspect comes from an upfront discount provided by the retailer in partnership with the bank. Here’s how it works:

Let’s say you want to buy a phone that costs ₹48,000, with a typical 16% annual interest. A standard 6-month EMI would have ₹3,840 in interest. But when you opt for No-Cost EMI, the retailer covers this interest on your behalf, reducing your price and essentially making your payments interest-free.

So, the interest isn’t removed but rather covered. The bank might still charge processing fees and taxes on the discounted interest. No-Cost EMI is widely available online and offline, with retailers like Amazon, Flipkart, Croma, Reliance Digital, and Vijay Sales.

Hidden Charges in No-Cost EMI

While No-Cost EMI can be beneficial, there are potential hidden charges too. So, before you press that button and convert the purchase of a fancy phone into a No-Cost EMI, check those:

Yes, No-Cost EMI is attractive and beneficial in some cases. However, before you press that button and convert the purchase of a fancy phone into a No-Cost EMI, you should be aware of the potential hidden charges involved.

• Processing Fee: This is a one-time charge levied by the bank for setting up the No-Cost EMI facility for you. The amount can vary depending on the bank, the purchase amount, and the retailer. On Amazon, it’s usually ₹199 + GST.

• GST on Interest Amount: Even though you don’t pay the interest directly, the bank technically does on your behalf. You’re charged GST on the interest the bank covers for you. If the interest is ₹5,000 which the bank gave you as an upfront discount, you’d pay ₹900 extra (18% GST) across your EMIs.

• Late Payment Charges: If you miss an EMI payment, the bank may levy hefty late payment fees, typically a percentage of the outstanding amount. This can increase the overall cost of your purchase.

• Pre-closure Charges: If you decide to repay the no-cost EMI loan before the tenure ends, some banks may charge a pre-closure fee.

Should You Take No-Cost EMI on Credit Card?

In my opinion, No-Cost EMIs are an easy way to spread out big purchases over time without spending much more, especially for items like smartphones, laptops, or air conditioners.

In fact, when wanting to buy something on EMI, always look for the no-cost EMI option, as even if you factor in the processing fee and GST, it’s still worth considering since you don’t pay any interest.

Let’s understand with an example:

Suppose you’re buying an iPhone 15 costing ₹71,999 on Amazon (at the time of writing) using credit card No-Cost EMI. Considering an annual interest rate of 15.99% and a processing fee of ₹199 + GST on ICICI cards, you’d pay ₹234 in processing fees and ₹1,036.13 in GST on interest over six months.

That amounts to an additional charge of ₹1270 which is relatively low for a ₹72,000 product, making No-Cost EMI a good option if you can afford the instalments and are not buying the product solely because it’s available on zero-interest EMI.

Here’s the breakdown:

• Phone price: ₹71,999
• Processing fee: ₹199 + GST = ₹234
• Interest rate: 15.99% per annum (may vary depending on the bank and your credit profile)
• Interest amount (over 6 months): ₹5,756.28
• Upfront discount: ₹5,756.28 (This effectively cancels out the interest)
• GST on the interest amount: ₹5,756.28 * 18% = ₹1036.13
• Monthly GST instalment: ₹1036.13 / 6 months = ₹172.70
• Total extra amount: ₹234 (processing fee) + ₹1036.13 (GST on interest) = ₹1270.13

Remember: Your Card Limit Is Blocked till the EMI Tenure Ends

The total purchase amount is blocked from your available credit until you pay it off. Your available credit reduces by the full purchase amount, not just the individual EMI instalments.

For example, if your credit card has a 1 lakh rupee limit and you purchase a 50-thousand-rupee AC on no-cost EMI, ₹50,000 would be blocked on your credit card instantly. This amount will be unblocked gradually as you pay your EMIs, with the same amount as your EMI being released after each payment.

Do Not Take No-Cost EMI If

• You cannot comfortably afford the monthly payments: While there’s no interest, the EMI can still represent a significant portion of your monthly income. If you miss payments, it can lead to penalties and negatively impact your credit score.
• You are an impulsive buyer: No-Cost EMIs can easily lure you into overspending on things you don’t need. That hefty fifty-thousand-rupee smartphone starts looking affordable when you only have to pay around four thousand rupees per month. Avoid impulsive purchases by taking a few days to consider your decision.
• Retailers might inflate the price: Retailers may inflate the price of a product to compensate for the interest they will be paying to the bank for offering a No-Cost EMI option. Hence, I advise comparing prices across different platforms (and available discounts) before making a purchase.
• You are unsure of hidden charges: If you don’t know all the charges involved, pause and read. Processing fees, late payment penalties, or prepayment charges might be applicable.

Pros and Cons of No-Cost EMI

Here’s a table highlighting the advantages and disadvantages of taking No-Cost EMI on your credit card:

Pros	Cons
Interest-free instalments	Hidden costs (Processing fee, GST, etc.)
Helps spread large ticket purchases	Potential for impulsive purchases and overspending
Easier budgeting	Inflated product prices
Improved credit score (with timely payments)	Blocks credit limit equivalent to the product price

Spend Responsibly

No-Cost EMI can help managing large purchases, letting you spread out the cost without added interest. However, watch out for hidden fees like processing charges and GST on the interest. Before you jump in, make sure you can comfortably afford the payments and aren’t buying on impulse. Happy responsible spending, everyone!