Credit card EMIs are a convenient way to pay for your monthly installments without burning a hole in your pocket all at once. They are a great financial instrument to enable you to fulfil your dreams in a calculated way. However, what are the things one should keep in mind before opting for credit card EMIs? Are there any extra charges? Late payment fee? Read on to know the advantages and disadvantages of paying your EMIs via your credit card.
What is the EMI payment via credit card offer and how does it work?
Some of the leading banks issuing credit cards give the option of paying credit card bills in equated monthly instalments (EMIs). This is especially helpful if you have a financial crunch and are not in a position to pay your full dues on time or at once. You could speak to the bank and take the EMI payment option. How it works is you can pay the outstanding amount in equated monthly instalments and the bank will charge you a fee to make that arrangement. Sometimes the arrangement could be arranged free of cost as well.
Things to keep in mind while taking the EMI option on your credit card
- When to take the EMI option on your credit card – If you have a good credit score, the bank would be willing to give you the EMI option. But you need to evaluate for yourself if you need the option. There are charges associated with the EMI option and you don’t want to pay that unless you need the EMI option. Usually, the EMI option is useful when you are running low on cash.
- Charges with the EMI option – The bank gives you the option to pay through EMI in return for a fee. There could be several charges/fees associated with this option and let’s take a look at what you should be asking the bank before taking the EMI option –
- Processing fee – The processing fee is the fee the bank charges to give you the option to pay through EMI. It is usually a one-time fee and ranges between 0-3% of your outstanding amount.
- Foreclosure fee – Foreclosure fee or prepayment charges is what the bank charges if you choose to pay your outstanding amount on the EMIs before the loan duration ends.
- Interest – The bank charges a percentage of interest on the outstanding amount just like a regular loan. In certain cases, banks also offer no-interest EMIs where the interest charge is waived. But in other cases, it’s important to ask what the interest rate is as it will impact the total amount you pay.
- Tenure of the EMIs – The bank gives you the flexibility to choose the tenure of the EMIs and accordingly the interest rate is also decided. While long-term loans can get you lower interest rates, be sure to calculate how much you will end up paying in total. Longer-term loans also mean that you pay a lower interest rate but for a longer tenure which means more interest payment.
- Credit limit – When you opt for credit card EMIs, the EMI amount is deducted from your credit limit. Which means that you will have a lower limit to utilize in future.
- What purchases can be converted into EMIs – All banks have their own set of items, things or purchases that can be converted into EMIs. While purchases like electronics, travel, insurance expenses, lifestyle expenses etc. are mostly acceptable, purchases like precious jewellery etc. might not be accepted by the bank.
- Reward points – Banks or financial institutions often do not provide reward points for purchases converted into EMIs. In such cases, you should always calculate the value of the reward points that you lose because of the EMI conversion. You could opt for a non-EMI purchase if the merchant is giving discounts only on the non-EMI option. Be smart and choose what benefits you most.
Benefits of taking the EMI option
- Reduced financial burden – This is especially useful in case of a financial crunch. If the bank offers a zero-cost EMI, then it is even better as it will not cost extra to the applicant.
- Delay in payment – It gives you the flexibility to pay for a high-value item over some time. Especially helpful when you do not have enough finance to make a lump sum one-time payment but can plan and pay over some time.
- Merchant EMI Offers – Many merchants extend special EMI offers as they have tie-ups with banks and financial institutions. Calculate the total pay-out it will cost you and accordingly take the offers. Some merchants offer no-cost EMI options which are a great way to make payments over a staggered period.
Alternate options to finance your purchases, other than credit card EMIs
While credit card EMIs are a convenient way to finance your purchases, they might cost you a significant interest amount. You should evaluate other options available to finance your requirements. A personal loan is a really good instrument as it is easy to get, comes with low-interest rates and can be taken for a variety of reasons/purchases. A personal loan is especially helpful if you have a good credit score in which case the bank/financial institution will be more than happy to extend the personal loan to you.
Credit card EMIs are certainly a great way of financing your requirement. No-cost EMIs or low-cost EMIs are a great way to make payments in installments over some time. However, one should always be aware of the charges associated with the EMI option. Carefully assess the above-listed factors that you should take care of before you opt for the EMI option. It’s important to calculate your ability to pay your EMI dues on time and in full else it can adversely affect your credit score and further your credibility.