Have you ever looked at a big-ticket purchase, like a smartphone, laptop or even furniture, and wished you could pay for it in parts instead of all at once? That is exactly where credit card Equated Monthly Instalments (EMIs) come in.
If you have a credit card, you have probably seen the “convert to EMI” option when shopping online or even after swiping your card at a store. But how do these EMIs work and are they really worth opting for? Let’s break it down.
What is an EMI facility on credit cards?
This facility allows you to make the repayment of a big-ticket expenditure in smaller, fixed monthly payments over a set time period. This period is usually three, six, nine, 12, or 24 months. Instead of paying the complete amount in one go, the cost is spread over time, which makes it easier on your pocket.
How does it function?
When you make the decision to convert a credit card transaction into an EMI, your bank blocks that amount from your credit limit and then slowly releases it back as you pay off the EMIs.
For example, if you buy a ₹30,000 phone on EMI and your credit limit is ₹1,00,000, your available credit becomes ₹70,000. With each EMI paid, your limit gets restored accordingly.
Types of credit card EMIs
- At Point of Sale (POS)
You select the EMI option while making the purchase.
- Post-purchase EMI
You convert a past purchase into EMI within a few days.
- No-cost EMI
You do not pay any interest, only the actual price, usually offered during sales or promotions.
- Regular EMI
Comes with interest, and sometimes a small processing fee.
Credit card interest rates on EMIs
Credit card interest rates on EMIs usually range from 13% to 24% per annum, depending on the bank, tenure, and your credit history. Some banks charge a one-time processing fee (around 1% to 2%) or a foreclosure fee if you close the EMI early. Even if the EMI amount seems low, always check the total interest cost before going ahead.
Things to keep in mind before choosing credit card EMI
Before you jump at the convenience of paying in instalments, it is important to weigh your options smartly. Here is what you should always check:
Compare interest rates
Every bank and card issuer offers different credit card interest rates on EMIs. Some may charge a lower rate but add hidden fees. Always compare the total repayment cost, not just the monthly EMI amount, before saying yes.
Look for no-cost EMI offers
No-cost EMI means you pay only the actual price of the product, with no interest. These are commonly available on gadgets, electronics, and home appliances during festive sales. If you qualify, this is the most cost-effective option.
Understand the terms
Do not ignore the fine print. Check the EMI tenure (how long you will be paying), processing fees (if any), interest rate, and foreclosure charges (fees for closing the EMI early). Knowing these helps avoid surprises later.
Do not overuse
While EMIs offer breathing space, converting too many purchases will block your credit limit. It can also lead to a repayment pile-up, making it hard to manage your monthly expenses. Use it only when necessary.
What happens if you miss an EMI payment?
Missing an EMI payment can lead to penalties and high interest charges. It can also hurt your credit score, which may affect your chances of getting a loan in the future. Always set reminders or opt for auto-debit to stay on track.
Ending note
Credit card EMIs are a great way to manage big purchases without draining your savings. They offer convenience, flexibility, and breathing space in your monthly budget. But like any financing option, they must be used wisely. Always check the interest rate, understand the total cost involved, and do not go overboard with multiple EMIs.
Think of it this way—EMIs can either ease your financial stress or silently pile on debt if not planned properly. Thus, use them only when needed, read the terms carefully, and ensure timely payments. When handled smartly, credit card EMIs can be an ally in your financial journey.
