How no-cost EMI works
- The bank charges its normal EMI interest. On a "no-cost" offer, the seller gives an upfront discount equal to that interest, so the bank lends you slightly less than the price and your EMIs add up to the price.
- Each month the bank also charges 18% GST on the interest part of your EMI. The discount doesn't cover this.
- A one-time processing fee, plus GST, is often added to your first EMI statement.
- Paying in full sometimes gets you an extra cash or instant discount. Choosing EMI means giving that up, which is a real cost too.
Worked example
A ₹60,000 phone on a 6-month EMI, card EMI rate 15%, ₹199 processing fee:
| No-cost EMI: monthly EMI | ₹10,000 |
| No-cost EMI: GST on interest | ₹457 |
| No-cost EMI: fee with GST | ₹235 |
| No-cost EMI: real extra cost | ₹692 |
| …and if you give up a ₹3,000 pay-in-full discount | ₹3,692 |
| Regular card EMI: extra cost | ₹3,364 |
The no-cost EMI is cheap but not free, about ₹692. Giving up a ₹3,000 discount makes it cost about ₹3,692, roughly 21.98% a year. Paying in full would be cheaper if your budget allows.
Assumptions
- GST at 18% on interest and on the processing fee.
- The fee is charged on the first EMI statement, and every EMI is paid on time.
- The yearly cost is the rate at which your payments equal the pay-in-full price, like an APR. Compare it with a personal loan for larger purchases.
Frequently asked questions
Is no-cost EMI really free?
Not quite. The bank still charges interest; the seller or brand gives you a discount equal to that interest, so your EMIs add up to the price. But you still pay 18% GST on the interest, usually a processing fee, and you may give up a discount you would have got by paying in full.
Why is GST charged on a no-cost EMI?
GST applies to the interest the bank charges on the EMI, and the no-cost discount covers only the interest itself, not the GST on it. It shows up on your card statement each month along with the EMI.
What is the processing fee on credit card EMIs?
Many banks charge a one-time fee each time you convert a purchase to EMI, often between ₹99 and ₹999, plus 18% GST. Some offers waive it, so check the EMI terms before converting.
Does an EMI on my credit card affect my credit limit or score?
The full purchase amount usually blocks your credit limit, and it frees up as you pay each EMI. High card utilisation can weigh on your credit score, so avoid using most of your limit. Paying every EMI on time helps your score.
Can I close a credit card EMI early?
Usually yes, but banks may charge a foreclosure fee, and on a no-cost EMI you may lose part of the discount. Check your bank's EMI terms before closing early.
Is a card EMI better than not paying the full card bill?
Yes, by far. If you pay only the minimum due, the rest of the bill attracts revolving interest that is often 36% to 45% a year, usually on the whole amount. A card EMI at 13% to 18% is much cheaper. Better still, avoid borrowing for things you can wait for.