Low-Cost EMI Explained: How It Works, Benefits, and What Indian Businesses Should Know

A low cost EMI (equated monthly installment) is an alternative method of making a larger purchase by breaking down the transaction into multiple lower priced monthly payments. The customer should still compare the total payable amount, including fees and taxes, with the price of paying in full.

Low-cost EMIs are used for eligible higher-value purchases; the minimum amount depends on the lender and offer. Such payment options are available through credit card EMI conversions, debit card EMI, cardless EMI, pay-later products, etc. At times the seller can offset some interest charged by the lender through a discount or cashback.

Businesses benefit from low cost EMIs because they increase affordability at checkout for customers looking to make purchases that are normally too expensive. Additionally, low cost EMIs can provide less payment friction and greater conversion rates for businesses selling high ticket products. Nevertheless, low cost EMIs do affect how businesses price their products, calculate their margin, handle returns/refunds, manage accounting/financial reporting and communicate with their customers.

What Is Low-Cost EMI?

When a customer makes a purchase on an EMI plan, the customer agrees to make periodic installment payments (usually monthly) in exchange for acquiring ownership of a product. When the customer agrees to an EMI, they agree to pay both principal and interest on that product each month for the agreed upon duration. Typically, when a consumer chooses an EMI, they end up paying more for the product than its original price due to interest being applied to the principal amount.

So, “low cost” does not always mean “zero cost.” A no-cost EMI is one type of low-cost EMI, but a low-cost EMI can also involve a small interest component, processing fee, GST on fees, or other charges.

How Does Low-Cost EMI Work?

With a low-cost EMI, the merchant, brand, or card issuer may provide an upfront discount that offsets some of the interest. The customer then pays instalments that, in total, may be closer to the product price than under a standard EMI. Any processing fee, tax on charges, or lost upfront-payment discount can still add to the cost.

Example: Suppose a customer buys a ₹60,000 smartphone on a six-month EMI.

Payment structure	Illustrative amount paid in instalments	What happens
Standard EMI	₹63,000	Interest adds to the financed price.
Low-cost EMI	₹60,000–₹61,000	A discount offsets some interest.
No-cost EMI	₹60,000	A discount offsets the disclosed interest; fees and applicable taxes may be extra.

This is an illustrative example. The exact amount depends on the lender, card type, tenure, merchant subsidy, processing fees, and applicable taxes.

The important point is that the customer should compare the total economic cost, not only the monthly EMI. That includes interest, processing fees, GST where applicable, foreclosure charges, and any discount foregone by choosing EMI instead of an upfront payment.

Types of Low-Cost EMI in India

There are various ways Indian consumers could possibly use low-cost EMI as a payment route.

Credit Card EMI

Credit card EMI enables customers to make a purchase and convert the entire transaction into instalments. The interest charged will vary depending upon the tenure of the EMI, but merchants may also give discounts to partially or wholly cover some or all of the interest.

Credit card EMI is commonly found in e-commerce, electronics retail, travel, healthcare and education. The choice of tenure and the rate of interest would depend on the issuing bank and the nature of the transaction.

Debit Card EMI

Some banks provide debit card EMI to eligible card holders, allowing certain transactions to be converted into instalments. The customer uses a debit card and therefore doesn’t use a credit card; however, the bank will determine the eligibility of the debit card holder for an EMI conversion based on its own rules.

In cases where customers don’t have a credit card but still wish to make a purchase on instalments, debit card EMI may be a viable alternative. However, availability of debit card EMI would vary from one bank to another depending on the type of debit card used, the minimum value of the transaction, the merchant’s agreement etc.

Cardless EMI

Cardless EMI provides eligible customers with the ability to take advantage of instalment based payment plans without having to use either a credit or debit card. The customer’s eligibility is determined by the lending partner and repayment occurs through whichever credit facility was selected.

Increasingly cardless EMI has become a way for online retailers to expand their customer base of individuals able to afford to purchase items on instalments.

Pay Later and BNPL Options

Pay-later products provide customers with the opportunity to delay payment or repay an item purchased via instalments. These are very distinct from traditional card EMIs in that it is the lending partners who assess creditworthiness, define repayment terms and charge applicable fees.

When offering pay-later products businesses need to clearly differentiate these from low-cost EMIs, as both types of products would involve different repayment obligations, charges and possible negative impacts on a customer’s credit rating.

Low-Cost EMI vs No-Cost EMI: What Changes?

Although sometimes used interchangeably, there is an important distinction between low-cost EMI and no-cost EMI.

Feature	Low-cost EMI	No-cost EMI
Interest burden	Some financing cost may remain for the customer.	An upfront discount is intended to offset the disclosed interest.
Merchant subsidy	May partly offset interest; who funds it varies by offer.	May fully offset interest; who funds it varies by offer.
Customer’s total payment	Can exceed the product price once interest, fees, or taxes are included.	May equal the product price in instalments, but applicable fees and taxes can increase the total.
Common use	Eligible larger purchases where a financing offer is available.	Seasonal sales, electronics, appliances, and premium products.
Impact on business	The subsidy may be lower, depending on the offer.	A larger subsidy may affect the margin, depending on who funds it.

In India, the RBI’s credit card directions require issuers to disclose the principal, interest, and any upfront merchant or issuer discount before EMI conversion and separately on the card statement. They also say an EMI conversion with an interest component must not be camouflaged as zero-interest or no-cost EMI.

Therefore, businesses need to describe such offers accurately. If interest is subsidised, show the interest and offsetting discount separately, as well as any processing fee and applicable taxes, so the customer can compare the total payable amount.

Also read: What Is No Cost EMI? Meaning, How It Works and Charges

How Can I Get Low-Cost EMI?

Eligible customers may receive a low-cost EMI if they meet the lender’s eligibility criteria and if the merchant has made available the offer.

Common requirements include:

• The customer needs to hold an eligible credit/debit card/cardless EMI account.
• The minimum value of the transaction must comply with lender/merchant standards.
• The EMI option is available to select during checkout/payment process.
• Sufficient available credit limit (where applicable).
• The customer accepts/reviews/agrees to repayment schedule/terms/disclosures related to interest/charges applicable etc.

During checkout, the customer generally selects EMI as the preferred payment method, selects a suitable card/financing option and selects a number of months for repayment, and finally reviews and confirms whether they accept the proposed instalment amount and overall cost of purchasing goods/services. Upon completion of these steps, the EMI is processed as part of the standard payment flow.

To activate EMIs on behalf of their customers, businesses require co-operation from a payment provider with suitable EMI options and adequate information provision during checkout so that customers understand available tenures/associated terms/applicable conditions etc.

When Is Low-Cost EMI Useful for Indian Businesses?

Indian businesses will find that low cost EMI for their consumers goes far beyond just being another consumer finance tool. Low cost EMI has become a checkout strategy and a revenue generating opportunity for many Indian businesses.

When Is Low-Cost EMI Especially Useful?

• Average order value (AOV) is very high.
• Customers compare prices across platforms.
• Purchase is planned but deferred due to upfront price tag.
• Financing offers can increase seasonal demand.
• Buyer needs to manage cash flow when buying equipment or software.

Any ecommerce business, consumer durables seller, travel company, edtech platform, healthcare provider and/or B2B company that sells high value products would be able to generate revenue using installment options when relevant.

Example: Electronics Store

An electronics retailer sells a refrigerator worth ₹36,000. Although there are several potential customers interested in buying the refrigerator they have reservations regarding paying the full retail price up front.

With a six-month low-cost EMI offer, the retailer can present a monthly payment of approximately ₹6,000, plus any remaining interest, fees or taxes under the offer. This may make the product easier to sell without decreasing its listed selling price.

Also read: How ScanToEMI Uses UPI QR for EMI Offers

Should the retailer fund the interest subsidy then it needs to take that cost into account when calculating the profit margin. Should the brand or lender fund the interest subsidy then the retailer should ensure it understands the commercial agreement, treatment for refunds, and implications related to settlements.

How Cashfree Supports EMI at Checkout

Cashfree provides payment gateway APIs and checkout features that let developers build online payment flows. Its payment-method documentation covers eligibility checks for orders, while its cardless EMI documentation covers supported checkout options. Merchants can use the Offer Engine to configure eligible discounts or no-cost EMI offers, and BNPL Plus to show available offers on product pages. The available method and tenure still depend on the order, customer, and partner.

Benefits of Low-Cost EMI for Customers and Businesses

Low-cost EMI can be beneficial to both customers and businesses provided they implement low-cost EMI transparently.

Customer Benefits

Low-cost EMI can benefit customers by:

• Reducing the upfront cash requirement.
• Making large purchases more affordable.
• Providing predictable monthly payments.
• Reducing/offsetting interest costs compared to standard EMI options.
• Helping customers purchase necessary products without delaying their purchase.

Business Benefits

Low-cost EMI can benefit businesses by:

• Increasing affordability at check-out.
• Allowing higher average order values.
• Reducing hesitation to make premium product purchases.
• Enabling seasonal campaigns and product launches.
• Providing financing opportunities while avoiding business becoming lender.

Costs and Risks Businesses Should Check

Low-cost EMI is beneficial, however low-cost EMI is not “free” to everybody.

Merchant Subsidy Cost

If the merchant subsidizes the interest, that reduces the effective margin. Merchants should calculate the subsidy as either customer acquisition/conversion cost and compare it to the incremental revenue generated.

Pricing Transparency

If the total payable under EMI is greater than the upfront payment price, customers may feel misled. Clear pricing and disclosure of applicable fees along with consistent product pricing helps build trust among customers.

Refund and Cancellation Policies

The refund process in EMI (Equated Monthly Installments) transactions could be a bit more complex compared to full upfront payment refunds. The merchant and payment provider/lender will have their own set of rules regarding how adjustments are done to a customers’ EMI schedules and whether they are canceled or completely refunded using applicable procedures.

A merchant needs to have documented refund policies related to EMI transactions so support staff knows what to do with partial refunds, complete refunds, cancellations and chargebacks.

Accounting and Reconciliation

An organization generally will recognize and collect payments on sales through its established revenue recognition guidelines. Ecommerce payment reconciliation helps connect an order to its fees, refunds and settlement. If a merchant subsidy occurs it would likely be recorded as a discount, marketing expense or financing costs depending on the terms of the agreement entered into by the parties and any relevant accounting standards.

Organizations need to keep track of:

• The order amount and invoice amount;
• the length of the EMI tenure and the customer repayment schedule;
• the merchant subsidy or discount amount;
• payment gateway fees and taxes;
• refunds, cancellations and chargebacks;
• settlements and any differences in account reconciliations;

Depending on the type of supply, the parties involved, and the specifics of the arrangement GST treatment may vary. Organizations should seek professional advice from an accountant or tax advisor for transaction specific guidance.

Common Low-Cost EMI Mistakes to Avoid

Businesses often lose the benefit of EMI offers because of avoidable implementation issues.

• Advertising “no-cost EMI” without clearly disclosing interest, offsets, fees, and taxes.
• Not showing the total payable amount before the customer confirms payment.
• Ignoring the cost of merchant-funded interest subsidies.
• Using inconsistent pricing between upfront payment and EMI options.
• Not preparing customer support for refund and cancellation queries.
• Treating EMI eligibility as guaranteed for every customer.
• Failing to reconcile EMI orders, refunds, settlements, and offers.

A practical rule is simple: if a customer would need to ask a support agent to understand the final cost, the checkout communication needs improvement.

Conclusion

A low-cost EMI makes high-value purchases more affordable by reducing or offsetting the interest a customer would otherwise pay. It is widely used in India across sectors where customers prefer manageable monthly payments over a large upfront outflow.

For businesses, low-cost EMI can improve checkout affordability and help customers complete purchases they might otherwise postpone.

Frequently Asked Questions

What does low-cost EMI mean?

Low-cost EMI means a customer pays for a purchase in monthly instalments with a reduced interest burden. The interest may be partly or fully offset by a discount from the merchant, brand, or card issuer.

What is the difference between low-cost EMI and no-cost EMI?

A no-cost EMI is designed so that the customer does not pay additional interest above the product price, subject to applicable fees and taxes. A low-cost EMI reduces the interest burden but may still include some interest or charges.

How can I get low-cost EMI?

You can get low-cost EMI if your card or financing option is eligible, the merchant offers EMI on the product, and the transaction meets the minimum amount and tenure conditions. Select EMI at checkout, choose a tenure, and review the repayment details before confirming.

Is low-cost EMI really interest-free?

Not always. The lender may charge interest, but a merchant discount or issuer subsidy may offset it. Processing fees, GST on fees, foreclosure charges, or a higher product price may still apply in some cases.

Does low-cost EMI affect credit score?

EMI repayment is a credit obligation. Timely repayment is generally viewed positively, while missed payments may negatively affect the customer’s credit history. The exact impact depends on the lender and how the account is reported to credit information companies.

Can businesses offer low-cost EMI without becoming a lender?

Generally, yes. A business can enable EMI options through its payment provider and the relevant lending or card-issuer arrangements. The business sells the product and collects payment, while the lender manages credit and repayment.

Is low-cost EMI available for B2B purchases?

It can be, depending on the payment method, lender, and merchant arrangement. Business credit cards, corporate cards, and certain financing products may support EMI conversion, but eligibility and terms vary.