The "No-Cost EMI" Scam: Detailed breakdown of Processing Fees + GST + Lost Discounts.

The "0% Interest" Trap

You see a shiny new iPhone 16. Price: ₹80,000. You don't have ₹80,000. But Amazon says: "No Cost EMI! Pay just ₹13,333/month for 6 months."

Math check: ₹13,333 x 6 = ₹79,998. Wow! It's effectively free money! The bank is giving me a loan for free!

Stop. Banks are not charities. They don't lend money for free. If you are not paying the interest, someone else is. And usually, that "someone" finds a way to take it back from you.

Let's decode the First Principles of the "No-Cost EMI" Scam.

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Part 1: The "Interest" Disguise (How it works)

RBI banned "0% Interest Loans" in 2013. So, how does Amazon/Flipkart still offer it? Loophole: They give you an "Upfront Discount" equal to the interest amount.

Example: Product Price ₹50,000 (6 Months Tenure)

• •Bank Interest Rate: 15% p.a. -> Interest Amount = ₹2,200.
• •Step 1: The Seller gives a discount of ₹2,200. Invoice Value = ₹47,800.
• •Step 2: The Bank gives you a loan of ₹47,800.
• •Step 3: You pay interest of ₹2,200 to the bank over 6 months.
• •Total Payment: ₹47,800 + ₹2,200 = ₹50,000.

Consumer thinks: "I paid ₹50k, product was ₹50k. Net Zero." But here comes the Taxman.

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Part 2: The Hidden Cost #1 (GST on Interest)

You only see the EMI amount. You don't see the Bank Statement. The Government of India charges 18% GST on Financial Services (Interest).

Even though the "Interest" was technically covered by the discount, YOU still have to pay GST on that interest component.

• •Interest Component: ₹2,200.
• •GST @ 18%: ₹396.

Who pays this? You do. It is added to your credit card statement quietly.

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Part 3: The Hidden Cost #2 (Processing Fees)

Banks charge a "Processing Fee" for setting up the EMI.

• •HDFC/ICICI/Axis standard fee: ₹199 + GST.
• •Bajaj Finserv Card fee: ₹117.

Total Extra Cost so far: ₹396 (GST) + ₹235 (Proc Fee) = ₹631. Still manageable, right? Wait for the big one.

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Part 4: The Hidden Cost #3 (The Lost Discount)

This is the Elephant in the Room. Merchants subsidize the interest (pay the bank) to make the sale. Where does that money come from? It comes from the margin they would have otherwise given YOU as a cash discount.

The "Opportunity Cost" Math:

• •Scenario A (No-Cost EMI): You pay ₹50,000. (Plus ₹631 hidden charges). Final Cost: ₹50,631.
• •Scenario B (Upfront Payment): Many products have a "₹4,000 Instant Discount on HDFC Credit Cards" (Non-EMI).
  • •You buy it for ₹46,000.

The Comparison:

• •You paid ₹50,631 (EMI) vs ₹46,000 (Cash).
• •Extra Cost: ₹4,631.
• •Effective Interest Rate: You paid ₹4,631 extra on a ₹46,000 loan for 6 months.
• •Annualized ROI Cost: ~20%

You thought you got a 0% loan. You actually took a 20% loan.

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Part 5: The Verdict (Decision Matrix)

When should you use No-Cost EMI?

✅ GREEN LIGHT (Use IF)

1. •There is NO Cash Discount: The product price is exactly the same for Cash vs EMI.
2. •You need Liquidity: You have the money, but want to keep it in a High-Yield Savings Account/FD (earning 7%) instead of spending it all at once.
3. •Inflation Hedge: If inflation is 6%, paying later is cheaper.

❌ RED LIGHT (Avoid IF)

1. •Instant Discount Exists: If Card Payment gives ₹2000 off, TAKE IT.
2. •Processing Fee is High: Check the T&C.
3. •You are buying impulsive liabilities: Don't buy a TV on EMI just because it "feels cheap".

The Final Word: "No-Cost" is a marketing term, not a financial term. Always calculate: (Total EMI Payments + Processing Fee + GST) - (Cash Price with Discounts). If the difference is positive, you are paying interest.