Take this typical offer: a ₹30,000 phone for ₹5,000 a month over six months. Six times ₹5,000 is ₹30,000, so it looks free. To see whether it really is, you need to look inside the arrangement. Banks don’t lend for nothing, so somebody is paying the interest.
How the arrangement usually works
There are two common forms.
Discount model. The seller or brand gives a discount equal to the interest. The bank lends you the discounted price and charges interest, so your instalments add up to the original price.
Built-in model. The price is set high enough to absorb the interest, and the plan is sold as if there is no interest at all. You may not see this unless you compare with what the same item costs elsewhere.
In both forms, a credit card EMI is still a loan, with a rate, a term and a repayment schedule. Read the EMI summary you are shown, not just the product page.
A sample breakdown
Suppose you buy a ₹30,000 phone on a six-month plan under the discount model, and the bank’s interest over those six months is ₹1,200.
| Item | Amount |
|---|---|
| Discount that offsets the interest | ₹1,200 |
| Interest charged to you across the EMIs | ₹1,200 |
| Net effect of interest and discount | ₹0 |
| GST at 18% on the interest | ₹216 |
| Processing fee | ₹200 |
| GST at 18% on the processing fee | ₹36 |
| Your extra cost | ₹452 |
That is about 1.5% of the price of the phone. It may be a fair price for spreading out your payments, but it isn’t zero. These figures are only an example, and different issuers may treat GST and fees differently, so check the actual terms.
Now suppose the same seller offers ₹1,500 off for paying upfront, an offer you lose if you choose EMI. Your real cost is then ₹1,952. Always compare with the best price you could get by paying in full.
What RBI has said
RBI has been clear on this for over a decade. Its circular of 17 September 2013 said that in zero per cent EMI schemes on card outstandings, the interest is often camouflaged and passed on as a processing fee, and that “the very concept of zero percent interest is non-existent.”
As of November 2026, RBI’s card rules also require complete transparency when transactions are converted to EMIs, and they say an EMI with an interest component must not be camouflaged as zero-interest or no-cost EMI. The offer you see in an online checkout may still use the phrase “no-cost EMI”, which is often used to describe plans where a discount offsets the interest. The sensible response is not to argue about the label, but to ask for the full breakdown.
Six questions to ask before you choose it
- What is the upfront price without EMI? Check it on other sites and at other shops too.
- Is there a processing fee? How much is it, and does it have GST on it?
- What is the GST on the interest? Check whether your statement will show it, and how much it adds up to.
- Which discounts would be lost? Cashback or instant discounts may apply only to full payment.
- What happens if the item is returned or the plan is closed early? Ask about foreclosure and any fees if the EMI is cancelled.
- What will the plan do to my limit? Usually, the full amount is blocked and released as you repay.
Side effects to keep in mind
Your limit. Suppose your limit is ₹60,000. A ₹30,000 EMI plan could block half of it at first, leaving ₹30,000 for other spending. That can also push up your credit utilisation, at least for a while.
Late payments. Instalments are added to your monthly bill. If you pay less than the total due, you may lose your interest-free period on other purchases and pay interest on your balance. Late charges can apply too, and your record can be affected.
Rewards. EMI transactions may earn fewer rewards, or none. Check how reward points work on your card.
Overlapping plans. Several small EMIs can feel affordable one by one. Added together, they can take up a large share of your monthly income. Before adding a new plan, total up what you already pay every month.
When it can make sense
It may be reasonable if:
- you were going to buy the item anyway, at about that price
- the total extra cost is clearly small and you understand it
- the monthly amount fits comfortably within your budget
- you are not already carrying a balance on the card
It’s a poor idea if the EMI is the only reason you can afford the item, if it nudges you into a more expensive version than you planned to buy, or if you are already struggling with repayments. In those cases, the easy monthly number can hide a purchase you may regret.
Bottom line
Think of no-cost EMI as a low-cost loan at best, not free money. Add up the fee, the GST and any lost discount, then compare that total with paying in full. Terms vary between issuers and sellers and can change, so check the current breakdown before you confirm.
Frequently asked questions
Is no-cost EMI really free?
Often not completely. The interest is usually covered by a discount from the seller or brand, or built into the price, while you may still pay a processing fee and GST. RBI has also said the very concept of zero per cent interest is non-existent.
Does no-cost EMI affect my credit score?
It can. An EMI plan on your card is repayment like any other, so a missed instalment can harm your record. It may also block part of your limit until it is repaid, which can raise your credit utilisation.
Can I close a no-cost EMI early?
Usually you can, but a foreclosure charge may apply, and any discount or benefit could be affected. Ask for the foreclosure terms before you take the plan.
Do I still earn reward points on EMI purchases?
It varies. Some issuers reduce or remove rewards on EMI transactions. Check your card's terms before you choose EMI.
