Consumers spend quite highly during festival seasons, even if their budget is limited. So, it will really help to have credit card equated monthly installments (EMIs). This will enable customers to make big-ticket purchases and break them into smaller bills. As per your repayment capacity, you can repay the money in monthly installments. 

How Does The Credit Card EMI Option Work?  

Users can convert their credit card spends into EMIs in two ways:  

  • On the e-commerce portal itself via instant EMI conversion: The merchant converts the price of the product into EMIs depending on the duration chosen at the time of purchasing. 
  • Conversion of the transaction amount into an EMI: Users can request the card issuer to convert the outstanding balance into EMIs. 

The interest rates are determined by the card issuer based on the credit history, and the credit limit is reduced by the amount converted into EMIs. Both these methods include all charges including the interest rates, processing fees, foreclosure charges, and late payment fee. In the case of merchant EMIs, the charges get adjusted against the discount. 

The EMI interest rates offered on e-commerce websites are usually lower or equal to interest rates offered on EMI conversion after the transaction. 

Costs To Be Borne While Opting For An EMI Scheme 

Interest Paid: The EMIS turn out to be higher since they come with hidden costs, which is nothing but the interest rate. 

Processing Fee: A processing fee is charged when you opt for the EMI scheme. This is a percentage on the transaction amount and varies across banks. 

Default in Paying EMIs: The EMI amount will get added to your monthly credit card bills. So, when you do not pay the credit card dues in a month, you will be charged the normal interest of anywhere between 24% to 36% for non-payment along with the late payment fee and taxes. In addition to these charges, the basic interest will also be charged. 

No Discounts or Offers: Banks have tie-ups with merchant outlets and offer the EMI option on various products. However,  most products with the EMI scheme do not have discounts or offers attached to them. For instance, an LCD costing Rs. 40, 000 under the EMI option may be available at Rs. 35,000 without the EMI option.  

Pre-closure penalties:  Most probably, you will have pre pre-closure penalty on products brought under the EMI scheme. This means that if you pay off the entire amount before the duration, you will have to pay the preclosure charges, which is usually in the range of 2.5% to 3% of the outstanding amount. 

Things to Know About The Credit Card EMI Option

As with any other loan or credit card, you should evaluate the EMI option before you take it. Here are some of the things you should read before you take up a credit card EMI option

  • Remember to read the fine print in detail as card companies can change the terms at their choice. . 
  • You must also verify if the total payment which is the sum of all the EMIs and the down payment is equal to the MRP of the product or if it is more than the quoted price. If it is higher, then it means they are levying processing fees and interest. So, if the product offered without EMI is cheaper, then it is better not to choose the EMI option. 
  • You must think about the pre closure penalty when you opt for EMIs. Usually, almost all credit cards have pre closure charges. It is good to opt for a credit card that gives nil preclosure charges since you should be able to close the scheme when you have cash in abundance.  
  • Also evaluate how the existing credit limit on your card will change if you opt for the EMI scheme. Your credit limit will come down by the outstanding EMI amount. The credit limit increases after every payment. 
  • Customers should be aware that the EMI option may bring down their credit score. This is because when your credit limit gets lowered, the CUR shoots up. CUR is the ratio of amount spent against the credit limit of the card. A CUT above 30% is not good and may result in a drop in the credit score.  

Benefits of the Credit Card EMI Option

  • Customers can repay the amount in installments according to the repayment capacity. So, they don’t feel the burden of paying cash.
  • Customers get a flexible tenure of 3 to 36 months. 
  • Several lenders offer the No-Cost EMI option. This means you have to repay only the price of the product and not the interest rate. For example, if you buy a TV for 48,000 Rs. and choose a tenure of 6 months to pay the amount, then you can pay equal installments of Rs. 8000 per month.

Conclusion

Although the EMI scheme is good since you don’t feel the burden of paying the money upfront, it creates the tendency to splurge. You will end up spending more since it is easy on your wallet. Also, there are hidden costs that come with an EMI option, so you actually end up paying more on the product than you ought to have. So, evaluate all the fees and charges of the EMI scheme before you opt for one. 

FAQS of Festival Shopping: Key Things To Know About Credit Card EMI Option

1:What impact does EMI have on your credit score? 

EMI can lower your credit score, because it lowers your credit limit and increases your CUR. Also, defaulting on EMIs can have a negative impact on your credit score. 

2:What is the processing fee on your EMI? 

For regular EMIs, the seller levies a processing fee that is in the range of 0.5% to 3% and an interest rate that can vary from 8% to 15%.

3:What is an interest free EMI?  

An interest-free EMI is a No cost EMI under which you have to pay only the product price in affordable monthly installments over your chosen tenure at zero interest.

 

Disclaimer: This page includes information that has been compiled from many sources and is only offered for informational purposes. Since this type of data might change over time, we cannot guarantee that the information supplied or included within it is accurate. It is anticipated that the user would confirm with the relevant source prior to taking any choices or actions.