How Does a Credit Card EMI Work? 5 Things to Know Before Opting for an EMI
Credit cards are effective payment solutions that help you transact on credit and allow a facility to pay back at a later date. A credit card EMI option is applicable on selected purchases or your total outstanding. When it comes to paying off credit card bills, credit cards offer you the facility of EMI payments. With this you get a line of credit that will enable you to conduct big-ticket purchases or back you during a financial crunch.
What is Credit Card EMI?
Credit card EMI is a facility granted to credit cardholders that allows them to pay their outstanding debts in smaller, affordable installments. The credit card EMI facility is available in two instances:
For a single big-ticket purchase
If you buy an expensive item or conduct a significant transaction using the card, many credit cards allow you the facility to break the transaction into affordable EMIs. Instead of paying for the transaction in one bill, you can spread the cost over the next few bills. This allows you to pay off the big-ticket purchase easily.
For your overall outstanding credit card bill
Some credit cards also allow you to convert the outstanding amount of your credit card bill into affordable EMIs. So, rather than allowing a specific purchase to be converted into EMIs, this facility enables you to convert the entire credit card bill into installments.
How Does a Credit Card EMI Work?
If you have the first option of converting a specified transaction into EMIs, you can request your credit card issuer to convert the purchase into affordable EMIs.
You can choose the repayment tenure over which you want to pay the EMIs. A down payment would also be required on the purchase. After you make an initial down payment, the rest of the amount will be converted into credit card EMIs. For instance, say you buy a refrigerator worth Rs.50,000. You ask the card issuer to offer you the EMI facility. You pay Rs.10,000 as a down payment, and the remaining Rs.40,000 is converted into EMIs, which you pay over the next 5- 7 months (as agreed upon by the issuer).
The second option of converting the entire credit card bill into EMIs also works in the same way. You make a down payment, and then the credit card issuer would convert your outstanding bill into monthly EMIs that you can pay with ease!
Also Read: What Is Credit Card Settlement And How To Avoid It?
Types of Credit Card EMIs
There are two main types of credit card EMIs that you should know of. These include the following:
No-cost EMIs
Under the no-cost EMI, credit cards offer you the option of EMI payments without charging interest on the loan amount. For instance, say your outstanding credit card bill is Rs.1 lakh. You can repay this amount through 5 EMIs of Rs.20,000 each. There would be no additional interest cost.
EMIs at reduced rates
Under this option, interest is charged on the amount converted into EMIs. However, the interest rate differs from the rate applicable on missing your credit card payment. So, you can opt for the EMI facility without paying high-interest rates.
Things to Know Before Opting for a Credit Card EMI
While the credit card EMI facility is quite helpful in making your bills affordable, here are a few things that you should keep in mind when opting for this facility:
- The applicable interest rate: While there is the concept of zero-cost EMI, not many credit card issuers offer this feature. There is usually an interest involved in most cases. So, understanding the nuances of interest rates is paramount. Check the rate of interest that the issuer is charging on the credit card EMI facility.
- Impact on your credit limit: If you opt for the credit card EMI facility, your credit limit would be reduced. This reduction would be to the extent of the amount that you convert into EMIs. For instance, if you have a credit limit of Rs.3 lakh and you convert Rs.1 lakh into EMIs, then, your credit limit would reduce to Rs.2 lakh.
- The processing fee: Credit card issuers might charge a processing fee when allowing you to convert your debt into EMIs. Check this fee as it is an added cost.
- Repayment tenure: The credit card issuer usually fixes the tenure over which you can pay the EMIs. This can range from 3 months to a year or two.
- Your eligibility: The credit card EMI facility is not offered to all customers. Card issuers assess your credit score, income, credit limit, and credit behavior and then provide the facility for EMI conversion. Moreover, the repayment tenure and the amount eligible for conversion also depends on your eligibility.
How to Convert Credit Card Payments Into EMIs?
If you feel that a single purchase would be difficult to pay off in the next bill and your credit card offers the EMI facility, you can opt for the EMI facility right when making the purchase. But, remember, an additional charge may be levied for converting your purchase into EMIs.
In the case of converting the entire outstanding bill, you would have to talk to your credit card issuer. Check if the issuer offers the facility of converting the outstanding debt into credit card EMIs. The issuer would assess your eligibility and decide on conversion. If allowed, you would be specified of the terms of repayment, and you would be able to convert your balance into easy EMIs.
Note: In both cases, you might have to make a down payment before the credit card EMI facility is allowed.
Benefits of Credit Card EMIs
Credit card EMIs have various benefits for cardholders. These include the following –
- Affordability: First and foremost, the option of credit card EMIs makes paying for your transactions affordable. You can easily make a big-ticket purchase and convert it into EMIs to avoid putting a dent in your budget. Similarly, if you have racked up large credit card bills, the EMI facility helps break down the debt into affordable installments to help you repay it quickly. The EMI facility makes credit cards affordable and a convenient way to shop.
- Convenience: Availing of the EMI facility is quite simple and convenient. All you need to do is inform the credit card issuer, and you can get the facility activated.
- Improvement of the credit score: Defaulting your credit card bills can severely damage your credit score. However, with the credit card EMI facility, you can make your bills affordable and repay them on time. This, in turn, helps in improving your credit score.
- Pre-approved facility: The EMI facility is pre-approved by the credit card issuer. Neither do you need prior approval nor have to engage in a lengthy process! A simple request can do the trick allowing you to opt for the facility.
How Does a Credit Card EMI Work for a No-Cost EMI?
If you have a no-cost EMI card, the credit card issuer allows you to convert your outstanding amount into EMIs without charging any interest. You just pay the principal amount back in installments and save on the interest outgo.
Also Read: A Complete Guide On How To Transfer Money From Credit Card To Bank
How Does a Zero-Cost EMI Differ from a Regular EMI Scheme?
The main difference between a no-cost EMI credit card and a regular EMI card is the interest expense. Under a zero-cost EMI, you do not pay any interest on the amount converted. However, under a standard EMI, interest is payable.
The zero-cost EMI is not commonly available. However, the regular EMI facility is offered by most card issuers.
Final word
A Credit card EMI is an excellent way of reducing your credit card debt burden and maintaining your credit score. So, if you make a big purchase or if your outstanding credit card is high, choose the EMI facility and make bill repayments a breeze. You can also opt for a personal loan, like the Navi Personal Loan, to pay for big purchases or to pay off high credit card bills. The loan would allow you to consolidate your debt and repay it at attractive interest rates. So, choose wisely and avoid defaulting on your debts.
FAQs on Credit Card EMI
Ans: If you opt for the EMI facility, your credit limit could be reduced. Moreover, you may be required to pay an additional interest rate on the amount you convert into EMIs.
Ans: The interest rate is not fixed. It varies across credit card issuers. Check with your credit card issuer the interest payable. You might even get the EMI facility at zero interest rate if your issuer offers zero-cost EMIs!
Ans: The repayment tenure also varies across credit card issuers. It can start from 3 to 6 months and go up to 2 years.
Ans: No, the EMI facility does not require any collateral security. You can avail of the facility if your credit card offers it.
Ans: Yes, some issuers allow the prepayment facility wherein you can make an additional payment towards the EMI. However, there might be a charge involved for the same.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
