Loans

0% APR / No-Cost EMI Calculator

60,000
6 Months
199
3,000
Effective Financing APR17.83% p.a.
Net Cost Premium3,676
Monthly EMI10,000

No-Cost EMI Hidden Costs Breakdown:

  • Cash upfront cost (price after discount): ₹57,000.
  • No-Cost EMI total cost: ₹60,676.
    • Upfront Product Price: ₹60,000
    • Processing Fee: ₹199
    • 18% GST on Interest Component: ₹477
  • Selecting the EMI plan over paying cash costs you an extra ₹3,676.
  • This makes the equivalent true cost of financing equal to 17.83% APR p.a.

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No-Cost EMI Hidden Interest Formula

Effective APR = IRR (repayment cashflows factoring in GST and processing fees)

Exposes the actual interest rate of 'No-Cost' EMIs where GST on interest and processing fees are charged.

Worked Example: ₹30,000 item on a 6-month No-Cost EMI (15% bank rate, ₹199 fee)

Merchant discount: ₹1,304. Processing fee + 18% GST on interest: ₹434. Effective financing APR: **18.4% p.a.**

No-Cost EMI: Decoding the retail discounts and hidden costs

Nikhil bought a laptop costing ₹30,000 on a 6-month 'No-Cost EMI' plan. The retailer advertised 0% interest. However, Nikhil noticed a ₹199 processing fee on his statement, and his monthly bank bill charged GST on interest.

He discovered the retailer gave a discount of ₹1,304 up front. The bank then charged 15% interest on the discounted price. Factoring in the ₹199 fee and 18% GST on interest, Nikhil's actual financing rate was 18.4% p.a., not 0%.

No-Cost EMIs give a upfront discount equal to the interest cost, but bank interest is charged on the bill, which attracts 18% GST.

Compare the No-Cost EMI price with the upfront cash discount price. If the cash discount is larger, buy outright to save on fees and GST.

Frequently Asked Questions

What is a 0% APR or No-Cost EMI?

It is a retail promotion where you buy an item on EMI without apparent interest charges. The retailer offers a discount upfront matching the bank's interest cost.

What are the hidden charges in No-Cost EMIs?

Hidden charges include bank processing fees, 18% GST charged on the interest component, and the loss of cash discounts that would be available for upfront purchases.

How is the effective APR calculated for No-Cost EMIs?

Effective APR is calculated by finding the Internal Rate of Return (IRR) on your actual cash outflows, which is typically 12% to 18% p.a. due to GST and fees.

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