No-cost EMI: As Republic Day sales begin, financing options like no-cost EMI (equal monthly installments) and BNPL (Buy Now, Pay Later) are popular. While no-cost EMIs claim 0% interest, beware of hidden charges, especially processing fees. in 2013, reserve Bank of India drew attention to zero percent emi The schemes cited deceptive practices and violations of fair pricing standards.
Here’s all you need to know about the no-cost EMIs listed by ET, how they are priced and what it means for consumers and financial institutions.
Understanding No-Cost EMI
No-cost EMI, also known as zero cost EMI or interest-free EMI, is a financing option that allows the cost of a product to be divided into EMIs without incurring additional charges over and above the agreed purchase price. This option is easily available both online and offline.

in October 2023 great indian festival sale, Amazon It was reported that one in four purchases were made using EMI, and three in four products were sold through no-cost EMI. Despite the allure of no-cost EMIs, consumers should be mindful of potential processing charges and hidden costs.
Hidden Fees and Pricing Structure
No-cost EMI plans advertise 0% interest, but hidden charges like processing fees tell a different story. In 2013, the Reserve Bank of India Cautioned against such schemes violating fair pricing practices. The term “no-cost EMI” is misleading, as the interest cost is inherent, whether it is visible or not. Manufacturers and traders, not consumers, bear these costs, impacting their profit margins. Some deals may lack advance payment discounts, which will put off buyers. Zero percent EMI on credit card outstanding often hides the interest within the processing fee.

The cost is included in the EMI, although the breakdown may not be immediately apparent. This can affect the total cost of the product, with sellers often absorbing the interest component to attract more buyers.
RBI’s role in ensuring fair dealing
In April 2022, the RBI reiterated its call for transparency in converting credit card transactions into EMIs. It urged card issuers to clearly outline the principal, interest and upfront rebate before conversion, demanding disclosures to prevent interest from being disguised as zero-cost EMIs.
Earlier, the RBI had found instances where merchants charged customers a percentage of the transaction value for goods purchased through debit cards. Considering these charges as “not reasonable” based on bilateral agreements between the acquiring banks and merchants, the RBI requested termination of the relationship between the banks and such merchants.
Further, the RBI emphasized that, for retail products, interest rates are generally uniform and not based on individual customer risk profiles. Some banks included expenses like earlier DSA Commission The interest rate applicable on the product is incurred in sourcing the loan.
Benefits for Lenders and Sellers
Lenders and sellers benefit from the income generated through processing fees, even when consumers avail discounts through EMI options. The costs associated with financing are included in the selling price of the product, helping sellers increase their sales volume. While sellers can combat rising interest rates by raising product prices, consumers experience increased liquidity and can earn reward points.
Impact of RBI’s increased risk weight
RBI’s increased risk weight on unsecured loans, such as personal and retail loans, may impact no-cost EMI schemes. The increased risk weight may result in higher interest rates on these loans, impacting sellers who may raise product prices to maintain net receipts.