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What is Credit Card EMI & How Does it Work?

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What is Credit Card EMI & How Does it Work?

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What are Credit Card EMIs?

With digital-first payments everywhere, it’s never been easier to use credit cards for cashless transactions. With credit card EMIs, the amount you owe your card issuer is converted into an EMI the same way a personal loan is.

Credit card EMI payments serve as a viable option for those who can’t pay their credit card bills in one go. It is also appropriate for those who prefer to pay a small amount of what they owe and have the rest carried forward with an element of interest.

Understanding the Mechanisms of Credit Card EMIs

Credit card providers accrue interest on late payments that credit card holders make. Provided you pay off your credit card bills on time and entirely each month, you won’t be liable to pay any interest. You will only be levied interest for late or incomplete (less than what’s necessary) payments.

Credit card EMIs benefit credit card holders as they have some wiggle room in case of a financial crunch. With EMIs, card holders are provided with some relief and have access to an extended credit limit. They can use their credit cards for transactions and repay at a later date.

Ordinarily, it is possible to convert credit card transactions into EMIs when you purchase something that exceeds ₹10,000. This EMI will then be calculated considering the interest rate that your credit card issuer levies, the tenure of repayment you opt for, and the down payment you make.

To understand this better, let us assume that you have purchased a washing machine for ₹40,000 and agree to pay ₹15,000 as a down payment. The remaining ₹25,000 can be paid in the form of EMIs over the course of 1 year with an interest of 12 per cent. This means that for each EMI payment, you will need to pay ₹3,000 for the next 12 months.

Converting Credit Card Payments Into EMIs

You are entitled to convert your credit card payments into EMIs when you carry out a transaction on your card itself. If you lack the necessary funds or can only cover a certain amount of your purchase, you can pay that amount as a down payment. The remainder of your credit card bill can be converted into EMIs.

A number of retailers like to push their customers who own credit cards towards the EMI route owing to the convenience it provides. It is possible to see what your EMIs amount to as they are charged to your credit card under your credit card bill each month.

It is important to understand that to have the EMI option available to you, your bank or credit card issuer must deem you eligible. This is because EMIs are ultimately viewed as loans that are then repaid on a monthly basis.

Therefore, banks and other credit card issuers will carry out a check to deem you worthy. Factors that are checked include your credit score as well as repayment habits with previous loans and current loans.

Factors to Consider - Credit Card EMIs

It is important to be aware of the following factors related to the credit card EMI process.

Interest Rates – Different banks and credit card issuers levy different rates of interest on EMIs. This rate will also depend on the time frame within which you intend to pay off the amount completely. Ordinarily, shorter time frames incur lower interest rates, while longer tenures attract higher interest rates.

Declining Rate of Interest – Most banks charge interest based on the reducing balance method. This means that the interest rate applicable depends on the balance amount of the loan that remains at the end of each month.

Repayment Time Frame – In most cases, you are allowed to choose a tenure that can range from 6 months to 2 years. Certain banks also offer 3-month tenures.

Processing Charges – Certain banks don’t charge a fee for converting purchases into EMIs, making it possible to save some money. In case these fees do apply, banks may choose to forgo them during festive seasons.

Cancellations – Credit card EMIs can be cancelled in case you have the funds necessary to pay off your EMI prior to your tenure’s end. You will, however, be required to pay a certain amount of money as a foreclosure fee. Long-time customers may be able to forego this charge.

Final Thoughts

While credit card EMIs are convenient, it is important to note that not every credit card provider offers this facility for all cards. Further, each time you opt for an EMI, your credit limit declines per the principal amount. That said, the processing fee applicable to the principal amount can be negotiated if you have a good history of repayment.

Online vendors provide EMI options to credit card holders and often provide hefty discounts that bypass retail commission costs. This allows you to avail yourself of superior EMI deals that range from 3 to 24 months.

That said, it is important to remember that most credit card EMI services have a ‘delayed payment penalty’ clause which should be understood properly. Credit card debt is serious and can be very expensive. Always better to make payments on time to avoid any hassle.  

Frequently Asked Questions

1. How do EMIs work with credit cards?

With credit card EMIs, the amount you owe your credit card issuer is converted into an EMI the same way a personal loan is. It is possible to convert credit card transactions into EMIs when you purchase anything that exceeds INR 10,000.

2. What is the interest applicable on credit card EMIs?

Different banks and credit card issuers levy different interest rates on their credit card EMIs. That said, the table listed below highlights the interest rates offered by some Indian banks.

Bank Interest Rate Tenure
Axis Bank 1.5% each month 6 – 24 months
HDFC Bank 1.5% each month 9 – 36 months
Punjab National Bank 1.5% each month 3 – 36 months

3. What is better: EMIs or full credit card payments?

Whether or not credit cards or their EMI services are better depends entirely on card holders. If you are able to pay your credit card bill in its entirety each month, ordinary credit card transactions are viable. If you can’t pay your whole credit card bill on time, credit card EMIs are appropriate.

4. Is credit card EMI good?

Credit card EMI is a good option to opt in for when you are unable to pay your credit card bills at one go. Your late payments can have a higher interest rate than your EMI. But do know that if you are unable to pay your EMIs on time, it can bring your credit score down along with paying a penalty.

5. What is the difference between credit card and credit card EMI?

When you use a credit card, you spend your issuers money on your transactions. At the end of the month, you pay the issuer back. In the case of you not being able to pay back in full, you might have to take your payment forward which comes with a strong levied interest. It's in cases like this where you can opt in for a credit card EMi that helps you splity your bill payments in a way that suits you.

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