No-cost EMI, BNPL and subscription traps

Meera’s ₹60,000 tablet on a six-month “no-cost EMI” cost her ₹721.42 more than paying for it that day, and had the shop given ₹2,000 off for paying in full, it would have cost ₹2,721.42 more. Neither number appears on the offer.

This lesson works out what a no-cost EMI really costs and its annual percentage rate, follows a buy now, pay later (BNPL) purchase to the credit report, adds up small subscriptions and the mandates behind them, and names the dark patterns that India’s consumer regulator forbids in checkouts and subscriptions. It is education only: every offer, fee and rate here is invented and labelled, and no product, card or app is recommended.

A no-cost EMI moves the interest; it does not remove it

No lender lends for nothing. In a no-cost EMIno-cost EMI: An instalment plan whose instalments add up to the price because the seller pays the lender's interest, by a price cut or a refund. The buyer may still pay tax on the interest, a processing fee and any lost discount. the lender charges its usual interest on what it finances, and the seller pays that interest, either by cutting the price by the interest at the start or by refunding it to you. The instalments then add up to the price, which is what makes the offer look as if it costs nothing. Meera’s card offers six instalments of ₹10,000 on her ₹60,000 tablet; the card’s own rate, from the invented offer’s terms, is 16 % a year.

Start the model below at that loan, then drag the yearly rate to 0 %:

At 16 % a loan of the full ₹60,000 costs ₹10,472 a month and ₹2,831 of interest. At 0 % the instalment is ₹10,000, the number the offer shows. Somebody pays the difference, and the RBI’s rules for credit cards say who must be told about it: the card issuer has to show the principal, the interest and the upfront discount that makes the EMI “no cost”, whether the seller or the issuer gives it, before the conversion and again on the statement. In the rules’ words, an EMI with an interest component “shall not be camouflaged as zero-interest / no-cost EMI”.

Count the GST, the fee and the discount you give up

Three things stay with the buyer of a no-cost EMI. First, the GST on the interest: interest on a loan is exempt from GST, but the Central Board of Indirect Taxes and Customs states that the exemption “specifically excludes interest charged on outstanding credit card balances”, so on a card EMI the interest is taxed even though the seller paid it. Second, any fee: amounts collected over and above interest are taxable too. Third, the discount a buyer paying in full would have had, when the shop offers one. Meera’s invented charge slip shows a ₹199 processing fee and GST at 18 % on the fee and on the interest. The program works the offer the way MySmartCoPilot’s no-cost EMI calculator does:

"""What Meera's "no-cost EMI" on a ₹60,000 tablet really costs, worked the way the no-cost EMI calculator works.

The offer and its charge slip are invented and labelled: a credit-card EMI over 6 months at the card's 16 % a year,
a ₹199 processing fee, and GST of 18 % on the fee and on the interest (the GST exemption for interest leaves out the
interest of credit card services). The seller makes it "no cost" by cutting the price by the interest, so the lender
finances less and the six instalments add up to exactly ₹60,000. Interest is monthly on the balance (16 % ÷ 12).
The APR is the monthly rate at which what she keeps today equals what she pays later, times 12.
"""

from decimal import ROUND_HALF_UP, Decimal, getcontext

getcontext().prec = 34
PRICE, MONTHS, RATE, FEE, GST = Decimal(60000), 6, Decimal(16), Decimal(199), Decimal(18)
CASH_DISCOUNTS = (Decimal(0), Decimal(2000))  # what a buyer paying the whole price today would get off


def inr(amount, paise=False):
    places = Decimal("0.01") if paise else Decimal("1")
    value = Decimal(amount).quantize(places, rounding=ROUND_HALF_UP)
    whole, _, frac = str(abs(value)).partition(".")
    head, tail = whole[:-3], whole[-3:]
    groups = []
    while len(head) > 2:
        groups.insert(0, head[-2:])
        head = head[:-2]
    if head:
        groups.insert(0, head)
    text = (",".join(groups + [tail]) if groups else tail) + (f".{frac}" if paise else "")
    return ("−₹" if value < 0 else "₹") + text


def irr_monthly(flows):
    """The monthly rate at which the flows' present value is zero, by bisection.

    flows[0] is what she keeps today and the rest are what she pays, so the present value rises with the rate."""
    def npv(r):
        return sum(f / (1 + r) ** t for t, f in enumerate(flows))
    lo, hi = Decimal(0), Decimal(1)
    for _ in range(120):
        mid = (lo + hi) / 2
        if npv(mid) > 0:
            hi = mid
        else:
            lo = mid
    return (lo + hi) / 2


i = RATE / 1200
emi = PRICE / MONTHS
loan = emi * (1 - (1 + i) ** -MONTHS) / i
balance, schedule = loan, []
for month in range(1, MONTHS + 1):
    interest = balance * i
    principal = balance if month == MONTHS else emi - interest
    balance -= principal
    schedule.append((month, interest + principal, interest, interest * GST / 100))
interest_all = sum(row[2] for row in schedule)
gst_interest = sum(row[3] for row in schedule)
fee_with_gst = FEE * (1 + GST / 100)

print(f"Price {inr(PRICE)}, {MONTHS} instalments of {inr(emi)}: the instalments add up to the price")
print(f"  The lender finances {inr(loan, True)}; the seller's price cut, {inr(PRICE - loan, True)}, is the interest")
print(f"  {'Month':<7}{'Instalment':>12}{'Interest':>10}{'GST on it':>11}")
for month, instalment, interest, gst in schedule:
    print(f"  {month:<7}{inr(instalment, True):>12}{inr(interest, True):>10}{inr(gst, True):>11}")
print(f"  Interest {inr(interest_all, True)}, paid by the seller; GST on it {inr(gst_interest, True)}, paid by Meera")
print(f"  Processing fee with GST: {inr(fee_with_gst, True)}, on the first statement")
print()
total_paid = fee_with_gst + sum(row[1] + row[3] for row in schedule)
for discount in CASH_DISCOUNTS:
    cash = PRICE - discount
    flows = [cash - fee_with_gst] + [-(row[1] + row[3]) for row in schedule]
    m = irr_monthly(flows)
    apr = (m * 1200).quantize(Decimal("0.01"), rounding=ROUND_HALF_UP)
    eff = (((1 + m) ** 12 - 1) * 100).quantize(Decimal("0.01"), rounding=ROUND_HALF_UP)
    paying_today = f"paying today costs {inr(cash)}" + (f" ({inr(discount)} off)" if discount else "")
    print(f"If {paying_today}:")
    print(f"  the offer costs {inr(total_paid, True)} in all, {inr(total_paid - cash, True)} more: an APR of {apr} % ({eff} % a year compounded)")

Price ₹60,000, 6 instalments of ₹10,000: the instalments add up to the price
  The lender finances ₹57,296.65; the seller's price cut, ₹2,703.35, is the interest
  Month    Instalment  Interest  GST on it
  1        ₹10,000.00   ₹763.96    ₹137.51
  2        ₹10,000.00   ₹640.81    ₹115.35
  3        ₹10,000.00   ₹516.02     ₹92.88
  4        ₹10,000.00   ₹389.57     ₹70.12
  5        ₹10,000.00   ₹261.43     ₹47.06
  6        ₹10,000.00   ₹131.58     ₹23.68
  Interest ₹2,703.35, paid by the seller; GST on it ₹486.60, paid by Meera
  Processing fee with GST: ₹234.82, on the first statement

If paying today costs ₹60,000:
  the offer costs ₹60,721.42 in all, ₹721.42 more: an APR of 4.13 % (4.21 % a year compounded)
If paying today costs ₹58,000 (₹2,000 off):
  the offer costs ₹60,721.42 in all, ₹2,721.42 more: an APR of 16.01 % (17.24 % a year compounded)

The lender financed ₹57,296.65, so the seller’s price cut of ₹2,703.35 paid the interest. Meera still pays ₹486.60 of GST on that interest and ₹234.82 for the fee with its tax, ₹721.42 in all. Measured as a loan, that is an annual percentage rateannual percentage rate (APR): The yearly cost of credit counting the interest rate and all other charges, such as fees. The RBI requires it in the Key Facts Statement of a retail loan, so that two loans can be compared on one number. of 4.13 %. If paying in full that day would have got ₹2,000 off, the offer costs ₹2,721.42 against that price, an APR of 16.01 %, about the card’s own rate. The “no-cost” offer is then no cheaper than an ordinary loan.

The APR is the number to ask for. For a retail loan, such as an EMI loan at a shop from a bank or an NBFC, the RBI requires the lender to give a Key Facts StatementKey Facts Statement (KFS): A standard summary of a loan's terms, including the APR, that an RBI-regulated lender must give before a retail loan contract is signed. A fee left out of it cannot be charged later without the borrower's explicit consent. before the contract is signed, with the APR, which it defines as the annual cost of credit including the interest rate and all other charges. A fee that is not in the statement cannot be charged later without your explicit consent. Credit card receivables are outside that circular, so for a card EMI the slip and the card’s own rules above are where the numbers are.

Pay-later credit is a loan that reaches your credit report

A BNPL button at checkout looks like a payment option, but behind it is credit from a lender. Rahul pays for ₹6,000 of headphones in three parts through a shopping app. The RBI’s directions on digital lending, for banks and for NBFCs alike, say that short-term or deferred-payment credit given over a merchant platform must be reported to credit information companiescredit information company: A company that keeps credit reports: the loans and cards in your name and how you have repaid them, reported by lenders. Lenders read the report before they lend again., and that all lending through digital lending apps is reported, whatever its nature or tenor. Step through the purchase to see what the report records:

The missed ₹2,000 sits on Rahul’s report as part of the ₹6,000 loan, where the next lender can see it. EMIs work the same way: a card EMI is part of a card account, an EMI loan at a shop is a loan, and the RBI’s directions on credit information reporting have lenders report both. A small purchase paid in parts is therefore part of the record that decides your next loan.

The directions on digital lending also give a digital loan a cooling-off periodcooling-off period: A period of at least one day after taking a digital loan in which the borrower may leave it by repaying the principal and the proportionate APR, without a penalty.. For at least one day, a period each lender sets in its policy, you may leave the loan with no penalty, repaying the principal with a proportionate share of the APR. The lender may keep a reasonable one-time processing fee only if the Key Facts Statement disclosed it upfront. A pay-later purchase you regret can be left within that period for the principal and a few days’ share of its yearly cost.

Small subscriptions add up: list them and check every mandate

Asha’s budget tracked her bank account, but nine small charges ran on her credit card, each set up once and never looked at again. The program adds them up for a year and marks the ones she did not open last month:

"""Asha's nine small monthly charges, added up for a year, and what the four she did not use cost.

The charges are invented and named by kind, not by service: each is a recurring payment set up once on her credit
card, as an e-mandate. "Used" means she opened it in the last month. Whole rupees.
"""

CHARGES = [  # (what it is, rupees a month, used in the last month)
    ("Video streaming", 149, True),
    ("A second video service", 99, False),
    ("Music streaming", 59, True),
    ("Cloud photo storage", 75, True),
    ("Fitness app", 199, False),
    ("Language app, a trial that turned paid", 149, False),
    ("News app", 49, False),
    ("Food-delivery membership", 99, True),
    ("Extra mobile data pack", 198, True),
]
E_MANDATE_NO_AFA_LIMIT = 15000  # per transaction, under the RBI's e-mandate framework


def inr(amount):
    digits = str(amount)
    head, tail = digits[:-3], digits[-3:]
    groups = []
    while len(head) > 2:
        groups.insert(0, head[-2:])
        head = head[:-2]
    if head:
        groups.insert(0, head)
    return "₹" + (",".join(groups + [tail]) if groups else tail)


print(f"  {'Charge':<40}{'Month':>7}{'Year':>8}  Used")
for name, monthly, used in CHARGES:
    print(f"  {name:<40}{inr(monthly):>7}{inr(12 * monthly):>8}  {'yes' if used else 'no'}")
month = sum(m for _, m, _ in CHARGES)
unused = sum(m for _, m, used in CHARGES if not used)
print(f"  {'All nine':<40}{inr(month):>7}{inr(12 * month):>8}")
print()
print(f"The largest is {inr(max(m for _, m, _ in CHARGES))} a month; together they are {inr(12 * month)} a year.")
print(f"The {sum(not u for _, _, u in CHARGES)} she did not use cost {inr(unused)} a month, {inr(12 * unused)} a year.")
print(f"Every charge is far below {inr(E_MANDATE_NO_AFA_LIMIT)}, so after its first payment none needs her to confirm it;")
print("each debit comes with only a notice, at least a day before it.")

  Charge                                    Month    Year  Used
  Video streaming                            ₹149  ₹1,788  yes
  A second video service                      ₹99  ₹1,188  no
  Music streaming                             ₹59    ₹708  yes
  Cloud photo storage                         ₹75    ₹900  yes
  Fitness app                                ₹199  ₹2,388  no
  Language app, a trial that turned paid     ₹149  ₹1,788  no
  News app                                    ₹49    ₹588  no
  Food-delivery membership                    ₹99  ₹1,188  yes
  Extra mobile data pack                     ₹198  ₹2,376  yes
  All nine                                 ₹1,076 ₹12,912

The largest is ₹199 a month; together they are ₹12,912 a year.
The 4 she did not use cost ₹496 a month, ₹5,952 a year.
Every charge is far below ₹15,000, so after its first payment none needs her to confirm it;
each debit comes with only a notice, at least a day before it.

None of the charges is above ₹199, yet together they are ₹12,912 a year. The four she did not use cost ₹5,952 a year, almost the ₹6,000 of her two train trips home. A charge this small never feels worth checking, which is exactly why a list matters more than any single line.

Each charge runs on an e-mandatee-mandate: A standing permission on a card, a UPI app or a prepaid wallet for a merchant to take recurring payments. Each debit comes with a notice at least 24 hours before, and the mandate can be cancelled at any time., and the RBI’s framework for them gives the payer rights at every step. Walk through the life of Asha’s ₹199 fitness app:

The rights add up to a routine. Once a year, and whenever a notice surprises you, list every mandate from the card settings and the UPI app’s list of autopay mandates, set each against a year’s cost and whether you used it, and cancel what you do not use, both with the service and as a mandate. The next statement shows whether the charge has really stopped.

Dark patterns India’s consumer regulator has named

Some charges were never chosen at all. The dark patterns guidelines that the Central Consumer Protection Authority issued in 2023 list thirteen dark patternsdark pattern: A design that misleads or tricks a user into doing something they did not intend, such as false urgency or a price revealed only at the last step. India's guidelines list thirteen and forbid them. More in “Money habits, biases and social pressure”, apply to platforms, advertisers and sellers, and forbid any person from using them. The lesson on money habits met false urgency and drip pricing; three more decide what a checkout or a subscription costs you. Step through one invented checkout:

The guidelines also make an exception that is useful to know: delivery charges, gift wrapping and taxes disclosed at the time of purchase are necessary fees, not basket sneaking. A platform that uses a named pattern can be reported to the National Consumer Helpline, run by the Department of Consumer Affairs, on 1915 or on WhatsApp at 8800001915.

Practise: price an offer, check a report, audit a list

The questions mix the five ideas, from the interest a seller pays to the pattern a checkout uses, and start where your answers have been weakest so far. Amounts are in rupees; round to the nearest rupee unless a question says otherwise:

Interview questions

Warm-up (fresher): What is a no-cost EMI, and what can it still cost you?

A no-cost EMI is an instalment plan whose instalments add up to the price. The lender still charges interest; the seller pays it, by cutting the price at the start or refunding the interest. What stays with the buyer is the GST on that interest, which applies on credit-card EMIs, any processing fee with its GST, and any discount a buyer paying in full would have had. On an invented ₹60,000, six-month offer at 16 % with a ₹199 fee, that is ₹721.42, an APR of 4.13 %; if paying in full would have saved ₹2,000, the offer costs ₹2,721.42, an APR of 16.01 %.

Warm-up (fresher): Does a buy-now-pay-later purchase affect your credit report?

Yes. Pay-later credit is a loan from an RBI-regulated lender, even when no interest is charged, and the RBI’s digital lending directions say that short-term and deferred-payment credit given over a merchant platform must be reported to credit information companies. Paid on time, the instalments add to a record of credit repaid on time. A missed one is reported as overdue and stays on the report that the next lender reads. A digital loan also has a cooling-off period of at least one day, during which you may leave it with no penalty, repaying the principal with a proportionate share of the APR.

Key takeaways

• A no-cost EMI moves the interest to the seller; the lender still charges it, and the card rules require the interest and the discount to be shown before conversion and on the statement.
• The buyer pays the GST on a card EMI’s interest, the fee and its GST, and any discount for paying in full: ₹721.42 on Meera’s tablet, or ₹2,721.42 and an APR of 16.01 % against a ₹2,000 discount.
• Pay-later and EMI credit is reported to credit information companies, so a missed instalment shows on the report the next lender reads, and a digital loan can be left within its cooling-off period of at least one day.
• Small subscriptions add up, ₹12,912 a year for Asha’s nine; an e-mandate gives a notice a day before each charge and can be cancelled at any time.
• India’s dark patterns guidelines name basket sneaking, subscription traps and SaaS billing among thirteen forbidden patterns, and complaints go to the National Consumer Helpline on 1915.