Zero cost EMI is a financial concept that allows consumers to make purchases without upfront payments. It has gained popularity in recent years, especially for consumer electronics, appliances, and larger expenses like vehicles and home renovations. With zero cost EMI, individuals can spread the cost of their purchase over a fixed period and pay fixed monthly installments without incurring any interest or finance charges. This payment model operates on the principle of deferred interest, where the retailer collaborates with a financial institution to offer customers the convenience of affordable and manageable payments.
To better understand how zero cost EMI works, let’s consider an example. Suppose you want to buy an air conditioner worth ₹40,000 on Flipkart. As you proceed to place the order, you are given the option to pay the amount over 6 months in equal installments of ₹6,668 with no interest charges or processing fees. This flexibility makes it easier for consumers to afford high-value items that may be beyond their immediate financial reach. However, it’s important to note that zero cost EMI is more of a marketing and sales strategy for retailers and brands, as it allows them to sell more products and earn commissions.
In the transaction, three entities are involved: the platform (Flipkart), the brand (Blue Star), and the finance company (Bajaj Finance). The finance company compensates for taking on credit risk by paying a discounted amount to the brand. As months pass by and EMIs are received, the finance company’s outstanding amount decreases along with the interest on it. This allows them to earn a significant net interest margin and acquire customers for potential cross-selling in the future. Overall, zero cost EMI provides consumers with a flexible payment option while benefiting retailers, brands, and finance companies.
