Festive shopping: Is no-cost EMI really cost-free? Here's hidden math behind ‘free money’ deals

With the festive season underway, no-cost EMIs on credit cards are once again dominating the Indian shopping landscape. The facility allows customers to buy premium products and spread payments across convenient monthly instalments, seemingly without any added interest. From smartphones to laptops and TVs, the idea of “pay later without paying more” feels like free money. But is it really?

According to Chartered Accountant Nitin Kaushik, who recently shared insights on X (formerly Twitter), the numbers reveal a different story. “On Amazon Prime Day, 25% of sales happened through EMIs, and of these, nearly 90% were on no-cost EMI,” he noted.

The hidden costs

Take the example of Rohan, who bought a Rs 1.28 lakh laptop on no-cost EMI. His bank offered him an Rs 8,000 discount and split the payments into Rs 10,000 a month. “No interest,” he thought.

But when his bill arrived, it showed an “interest” entry. On asking, the bank clarified:

The laptop price was divided into principal + interest.

Interest, typically 15–20%, was charged but offset with a matching discount.

On paper, it appeared as if there was no interest.

Here’s where the catch lies:

GST is charged on interest, even if discounted (18%).

Processing fees of Rs 100–Rs 1,000 are common.

Longer EMIs magnify these hidden costs.

In Rohan’s case, after factoring in GST on interest (Rs 3,600) and fees (Rs 118), the actual cost rose to Rs 1,23,718. Net benefit? Just Rs 4,300 — not the full Rs 8,000.

The debt trap

The bigger danger is psychological. That Rs 1.2 lakh laptop is reframed in the buyer’s mind as “Rs 10K/month.” Add a smartphone, earbuds, and a TV, and suddenly Rs 25,000–Rs 30,000 of income disappears into EMIs every month.

If a single payment is missed, the entire equation collapses:

Interest rates can soar to 30–50% annually.

Credit scores take a beating.

In some cases, discounts are clawed back.

“This is why banks and retailers love long-tenure EMIs,” Kaushik explained.

When does it make sense?

Kaushik stresses that EMIs aren’t evil. They can help if:

You want to preserve cash for emergencies.

The net calculation still offers a real discount after adding GST and fees.

But he cautions: “Always compare the upfront price with the EMI price, add GST on interest, check foreclosure charges, and consider tenure. Longer tenures are riskier.”

No-cost EMIs are usually offered on short durations (3–6 months). Stretching them to a year or more often attracts interest, eliminating the “no-cost” promise.

The bigger question

At its core, a no-cost EMI simply allows buyers to split payments without paying more than the sticker price. But the perception of affordability can be misleading.

“The real question isn’t ‘Can I afford Rs 10,000 a month?’” Kaushik concluded. “It’s ‘Can I afford Rs 1.2 lakh today?’ That mindset alone can keep you out of debt traps.”

As festive discounts lure millions of shoppers, financial experts warn: do the math, look past the glossy “no-cost” label, and treat EMIs as a tool — not free money.