Credit card & no-cost EMI calculator: methodology
How we calculate the true extra cost of standard and no-cost credit card EMIs, including GST on interest and processing fees, and an effective APR.
Last reviewed: Reviewed by: ClearRupee Editorial Team
Standard EMI
The full purchase amount A is converted into a loan at the EMI interest rate:
EMI = EMI(A, rate, months)
Extra cost = total interest + GST on interest + processing fee + GST on fee
No-cost EMI
The interest is covered by an upfront discount, so your EMIs add up exactly to the price:
EMI = A ÷ months
Amount financed = present value of those EMIs at the EMI rate
Discount = A − amount financed (= total interest)
Extra cost = GST on interest + processing fee + GST on fee
GST
GST is applied each month to the interest part of that month's EMI, and once to the processing fee. The rate defaults to 18% and is editable.
Why GST applies: interest on loans is normally exempt from GST, but the exemption in entry 27(a) of Notification No. 12/2017-Central Tax (Rate) specifically leaves out "interest involved in credit card services". So card EMI interest is taxable, and so is the processing fee, which is a fee rather than interest. Banks show this as a separate GST line on your statement; check it to confirm the rate your bank charges.
Effective APR
We treat the purchase as money received today, minus the processing fee and its GST. Each month you pay the EMI plus that month's GST on interest. The effective APR is 12 × the monthly IRR of these cash flows, the same method as the true cost checker. When there's no extra cost, APR is 0%.
Limitations
- Assumes the processing fee is charged at conversion. Some banks bill it in the next statement.
- Excludes late fees, foreclosure charges and any lost reward points or cashback.