How does Credit Card EMI Work?

Credit Cards not only offer credit to its users but also provide them the liberty to make repayments in installments as per their comfort. Lately, credit cards have turned out to be one of the most useful financial instruments for users. Whether it is to make huge payments, or to make payments in emergencies, credit cards come to the rescue of its users.

For instance, if you buy a product which costs more than your monthly income using your credit card, you don’t need to worry about repaying the amount in the very next month. You can easily break up the repayment amount into monthly installments and pay it as per your budget. For example, if you buy furniture worth Rs. 1 lakh using your credit card, while you earn a sum of Rs. 60,000 on a monthly basis, you don’t need to worry about repaying the entire amount in the next month. You can divide the repayment amount of Rs. 1 lakh into EMIs and repay it as per your convenience. For example, you can have 5 installments of Rs. 20,000 each in this case. This would make your financial life easier as it would not burn a hole in your pocket and you would also be able to buy something that’s actually beyond your budget.

Here are a few points to note that will help you better understand how credit card EMI works-

  • The EMI will be calculated on various factors such as the rate of interest charged by the bank, the time period chosen for repaying the amount, down payment amount, etc.
  • The monthly EMI is charged to the user as a part of the monthly credit card bill statement

How to Convert Credit Card Payments into EMIs?

Users have the option to opt for repayment of your credit card bill into EMIs right at the time of purchase. If you have a certain amount with yourself at the time of purchase, you can choose to make the down payment, while the remaining amount can be converted into EMIs.

Well, it is important to note that the option to repay the credit amount in EMIs is not solely in the hands of the credit card holder. The major deciding factor of whether or not a user is eligible for converting his/her credit card bills into EMIs lies in the hands of the credit card issuer/bank.

Credit card bill is considered as a loan from the bank. The bank loans you the credit card bill amount as per your need and you get the flexibility to repay it in parts. So, before lending you the amount, it is important for the banks to ensure that you will repay the amount in its due time and would not take undue advantage of the loan it has offered you. For this, banks check your credit score, credit repayment history and your current loans, etc. before deeming you eligible for converting your credit card payments into EMIs.

Factors to Note to Convert your Credit Card Bills into EMIs

Listed below are some of the important factors that you should consider before converting your credit card bills into EMIs-

  • Interest Rate – It must be noted that banks charge interest on the credit card bill amount that gets converted into EMIs. The interest rate, however, varies from bank to bank. It depends on various factors such as the down payment amount, repayment tenure, etc. The shorter the tenure, the lesser the rate of interest and vice versa. So, it is better to repay the loan amount as soon as possible!
  • Reducing Balance Method – Mostly, banks charge interest on EMI amount using the reducing balance method. This means that the interest will be charged on the remaining loan balance at the end of every month. So, for instance, if you have a loan of Rs. 50,000 and you have paid Rs. 10,000 in the first month, the interest in the next month will be charged on the remaining amount of Rs. 40,000. In this way, the interest amount that you have to pay reduces every month.
  • Repayment Tenure – You can choose a repayment tenure anywhere between 6 months and 2 years. However, it is important to note that the shorter the repayment tenure, the lesser the amount of interest to be paid.
  • Processing Fee – Some banks charge a minimal processing fee on converting the credit amount into EMIs while others do not charge any such fee. Usually, it is during the festive season, when banks waive off this processing fee, so you can make your purchases during that time.
  • Foreclosure and Cancellation – In case you manage to accumulate the pending loan amount, you can repay it before your repayment tenure ends. This refers to foreclosure or cancellation of your loan. However, in such cases, various banks may charge a minimal foreclosure fee while others may not.

Important Points to Consider

Consider the following, important points before converting your credit card bill into EMIs-

  • Not every credit card offers the facility of converting your credit card bills into EMIs. And for those that offer, not every user will be eligible for converting credit card bills into EMIs
  • Making EMI purchases on credit cards reduces your credit card limits. As soon as you opt for the EMI option, your spending limit would straight away be cut down but the amount of your purchase (principal amount)
  • When you have to make an EMI purchase, it is better to opt for making the purchase online. This is because online merchants have tied up with various merchant banks to scale up their sales, owing to which they not only offer good deals but also offer various discounts by bypassing the cost of their retail commission
  • If possible, try to prepay your loans as they will help you get rid of the high interest amounts that you may be paying otherwise. Also, it is important to note that you are not always charge foreclosure fees, so it better to opt for prepayment

To Conclude:

While it is easy to get your credit card bills converted into EMIs, it is also important to consider the various factors that have a major role to play in converting your credit card bills into EMIs. The most important of all is to note that not all credit card issuers provide the facility of EMI repayments, and not all credit card holders would be eligible for it. If at all, you decide to go for an EMI purchase on your credit card, ensure that you borrow the amount for a short period of time.

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FAQs
How does credit card EMI work?
Users have the option to opt for repayment of your credit card bill into EMIs right at the time of purchase. If you have a certain amount with yourself at the time of purchase, you can choose to make the down payment, while the remaining amount can be converted into EMIs.
How much is the rate of interest on credit card EMI?
Banks charge interest on the credit card bill amount that gets converted into EMIs. The interest rate, however, varies from bank to bank. It depends on various factors such as the down payment amount, repayment tenure, etc.
Is it okay to convert credit card bills into EMIs?
Yes, it is absolutely okay to convert credit card bills into EMIs. However, you must consider the pros and cons of doing so. If at all, you decide to go for an EMI purchase on your credit card, ensure that you borrow the amount for a short period of time.
What factors should be considered while converting credit card bills into EMIs?
While converting credit card bills into EMIs, you must consider various factors such as the interest rate charged by your bank, your repayment capacity, whether or not the bank offers credit on reducing balance method, etc.
Are there any drawbacks to making EMI purchases on credit cards?
There are no major drawbacks to making EMI purchases on credit cards. However, you must note that if you make EMI purchases, you must try to repay the loan amount as soon as possible in order to avoid the interest applied on the same, among various other factors.
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