No-Cost EMI is an offer by which your customer pays the EMI provider only the product price, equally divided over the repayment timeline. Know more about No Cost EMIs as a Razorpay payment method.

Example🔗

Let us consider the example of a customer buying a mobile phone worth ₹15,000 on No-Cost EMI on a 3-month EMI period. The bank charges 15% interest per annum. Additionally, the bank may charge the customer GST on the interest.

CopyCost of mobile phone: ₹15,000 Tenure of No Cost EMI: 3 months Interest Rate: 15% per annum Interest Amount: ₹367.33 No-Cost EMI Amount: ₹5,000 Actual loan amount charged on customer's card (Cost of Mobile Phone minus Interest Amount): ₹14,632.67

The No-Cost EMI calculation is given below:

Month

Outstanding loan at the start of the month

EMI

Interest

Loan Principal Paid

Outstanding principal at the end of the month

GST on Interest at 18%

EMI + GST

1

14632.67

5000

182.91

4817.09

9815.58

32.92

5032.92

2

9815.58

5000

122.69

4877.31

4938.27

22.09

5022.09

3

4938.27

5000

61.73

4938.27

Nil

11.11

5011.11

Total

15000

367.33

14632.67

66.12

15066.12

Customers Pay GST on Interest
In a no-cost EMI, you provide a discount on the principal. The monthly installment paid by the customer consists of this principal and the interest. As the issuing banks still charge the interest, the customer will be charged the GST on interest by the bank.

Calculation of EMI🔗

EMI is generally calculated using the below formula:

EMI = [P x R x (1+R)^N]/[(1+R)^N-1]

where
P = Principal
R = Interest rate per month
N = Number of installations of the EMI

For No-Cost EMI, the EMI value is calculated as A/N, where A is the price of the product.

From the above example, EMI is ₹15000/3 = ₹5000

We will replace this value in the above equation to calculate the value of P.

5000 = [P x (0.15/12) x (1+(0.15/12))^3]/[(1+(0.15/12))^3-1]

P comes out to be ₹12333, and the discount borne by you is ₹367.33. This is equal to 2.45% of the original amount.

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