The festive season sales have already begun and many companies—both offline as well as online—have been receiving a lot of orders, primarily due to discounted offers and no-cost equated monthly instalments or EMIs. 

This year during Flipkart’s Big Billion Days Sale and Amazon’s Great Indian Festive Sale, many users used the facility to buy products. However, did these customers save anything extra by availing of the offer? 

While buying something on EMI and not paying any interest sounds tempting, no-cost EMIs are often a marketing gimmick.

What are No-cost EMIs or Zero-cost EMIs?

No-cost EMI is just like a normal equated monthly payment option but you do not need to pay an interest along with the principal. In such offers, the interest you have to pay on purchasing a product will be offered as an upfront discount during the time of checkout. 

While no-cost EMI shields customers from paying a lump sum upfront amount for a product, individuals should not forget the hidden cost that one has to pay for availing no-cost EMI on products. 

So, why is it a gimmick?

No discount
When you opt for a no-cost EMI, the seller does not give you the discount that you would have got had you paid the full price upfront. What actually happens is that they tie-up with a bank or financial institution for such offers and pay them the margin to cover the interest cost.

Essentially, you pay the original price of the phone in installments: the retailer gets the discounted price and the balance (i.e., the ‘discount amount’) goes to pay the interest on the loan.

Inflated prices
Many times, the interest price is added to the price of the product and then offer a no-cost EMI. Often the offer is enough to lure customers, who tend to ignore the inflated price.

Example: Let us say the product costs Rs 15,000. The retailer offers you this product under the ‘No-cost EMI’ plan for Rs 17, 250. Here the interest of Rs 2,250 is already added to the cost of your product and will be paid by you as you repay the loan.