Diwali shopping: Should you pay upfront or choose no-cost EMI for expensive purchases? Here’s what buyers must know
Diwali is one of the biggest shopping occasions in India, with retailers and e-commerce platforms offering discounts on smartphones, televisions, refrigerators and other expensive consumer durables. For buyers planning big-ticket purchases, no-cost EMI offers can make spending easier by spreading payments over three, six or 12 months instead of paying the entire amount upfront.
However, choosing between an upfront payment and no-cost EMI is not always straightforward. While no-cost EMI allows consumers to spread payments without directly bearing the interest, it does not necessarily make a purchase cheaper. Manufacturers or retailers typically absorb the interest cost, while buyers may still have to pay processing fees, GST and other charges.
An upfront payment, meanwhile, could help consumers negotiate an additional discount or receive cashback that may not be available on EMI transactions.
Here’s what buyers should consider before choosing between the two options.
Understand how no-cost EMI works
“When a consumer opts for a no-cost EMI scheme, the purchase is turned into a loan, usually through a credit card, debit card or consumer durable loan, and repaid in equal monthly instalments. The lender still charges interest on the loan. The difference lies in who pays it,” said Adhil Shetty, CEO of BankBazaar.
Although the customer does not directly pay the interest, the lender still charges it. In most cases, the manufacturer or retailer bears this cost by paying interest to the lender or offering an upfront discount equivalent to the interest amount.
For instance, if a smartphone costs ₹30,000 and is available on a three-month no-cost EMI, the buyer pays three instalments of ₹10,000 each.
Ananth Shroff, founder and CEO of DPDzero, explained that the manufacturer typically pays the lender an upfront subvention, effectively covering the interest cost. This allows the lender to finance an amount lower than the product’s MRP, while the buyer’s instalments add up to the listed price.
Compare the final price with an upfront discount
A no-cost EMI offer does not automatically make a product cheaper. Consumers should check whether the retailer is offering a separate discount or cashback for paying the entire amount upfront.
Some retailers may offer a lower price for full payment because the discount otherwise used to offset the EMI interest can be passed on to the buyer.
“If the funds are available and the upfront price is lower, paying in full may cost less,” Shetty said.
Shroff said consumers who can negotiate an additional discount with the retailer by paying upfront may come out ahead.
For example, if a television is available at ₹50,000 on no-cost EMI but the retailer is willing to offer an additional discount for full payment, consumers should compare the discounted upfront price with the total EMI outgo.
The comparison should account for all applicable fees and taxes, rather than just the monthly instalment.
Factor in processing fees, GST and other charges
Even when the interest cost is borne by the manufacturer or retailer, consumers may have to pay additional charges when choosing no-cost EMI.
These include processing fees, GST on the processing fee and interest component, platform or convenience fees, and foreclosure or cancellation charges.
Shetty said lenders may charge a flat processing fee or a percentage of the transaction amount, along with 18% GST on the fee. GST at 18% also applies to the interest component of credit card EMIs, even when the merchant bears the interest cost.
For instance, on a ₹50,000 purchase financed over six months at an annual interest rate of 15%, the interest component would be approximately ₹2,100, attracting around ₹380 in GST.
Shroff pointed out that processing fees, platform charges and cancellation or early-closure costs can eat into the savings, particularly on smaller purchases and shorter repayment tenures.
Therefore, consumers should calculate the total amount payable under EMI, including applicable charges, before comparing it with the upfront payment option.
Check whether you lose out on discounts and credit card rewards
Another factor to consider is whether choosing EMI means giving up other benefits available on full-payment transactions.
Some retailers offer additional discounts or cashback to customers who pay upfront. These benefits may not be available on no-cost EMI because the discount is being used to offset the interest cost.
Credit card reward points are another consideration. Some card issuers do not offer reward points on EMI transactions, depending on the card’s terms and conditions.
Shetty advised consumers to compare the lowest upfront price with the total EMI outgo, including fees and GST.
If the upfront discount is substantial, paying the entire amount immediately could be more economical. However, if there is no meaningful price difference, no-cost EMI can help spread a large expense without immediately using up savings.
Consider your monthly budget and repayment ability
The decision should also depend on whether consumers can comfortably afford the monthly instalments.
No-cost EMI can help households manage expensive Diwali purchases without making a large one-time payment. However, buyers should account for existing loan repayments, household expenses and other financial commitments before taking on another EMI.
Missing an instalment can attract late payment fees, penalties and other charges imposed by the lender. It can also affect the borrower’s credit profile.
Shroff cautioned that the no-cost benefit holds only as long as the borrower repays on time. A missed payment can make what appeared to be a free financing option significantly more expensive.
Consumers should also check the terms for early loan closure or product returns. Shetty noted that interest already paid may not be fully refunded if a product is returned midway through the loan tenure or the loan is closed early.
Upfront payment or no-cost EMI: Which should you choose?
The choice ultimately depends on the price difference and the buyer’s financial position.
If a retailer offers a meaningful upfront discount and the buyer has sufficient savings without compromising their emergency fund, paying in full may be the cheaper option.
On the other hand, no-cost EMI can be useful when there is little difference between the upfront and EMI prices, the additional charges are reasonable, and the monthly instalments comfortably fit the household budget.
The key is to compare the total cost of both options rather than getting attracted to a low monthly instalment or a zero-interest label.
For Diwali shoppers, the best deal is not necessarily the one with the lowest EMI, but the one that offers the lowest overall cost without putting pressure on monthly finances.
