HomeLifestyleIf you also do EMI on credit card, then know these 4...

If you also do EMI on credit card, then know these 4 things, otherwise this cheap deal can be costly

Highlights

Get to know the additional charges on Credit Card EMI
Must consider processing fee, foreclosure/prepayment charges
Check interest rates on different EMI tenors

New Delhi: The EMI facility available on the credit card provides relief in making large purchases. Because the money can be paid in easy installments rather than in a lump sum. EMI facility is available for 3, 6, 9 and 12 months on purchases made through the card. Apart from this, the payment of the total purchase bill on the card can also be done partially or in installments. Although the option of EMI is convenient for everyone, but before choosing this option, you must keep some things in mind. Because there are some such charges on EMI which we often do not pay attention to.

Know about fees and other charges
The EMI facility available on the credit card is subject to some additional charges like interest, processing fee, pre-payment / foreclosure charges etc. The processing fee on EMI is charged only once, which is up to 3 percent of the total amount. Foreclosure/prepayment charge is the fee charged when you want to close your loan installments on time. At the same time, the card issuing institution charges interest on EMI. However, on no-cost EMI, these charges are waived or adjusted against other discounts.

read this also: Is it beneficial to have more than one credit card? know the reality

Choose the right EMI tenor
Credit card issuers generally offer lower interest rates over a longer period. But before choosing the payment term, you must calculate the interest payable for that entire period. Let’s say you want to do an EMI of Rs 10,000 with a credit card. In this, the rate of interest for a period of 3 months is 20 percent, while for 12 months this rate is 18 percent. If you choose a lower rate, i.e. 18 percent, to be paid over a period of 12 months, you will have to pay more. Know how….

Interest on 3-month EMI plan: Rs 493.15 [10,000*(20%/365)*90]
Interest charged on 12 months EMI plan: Rs 1,800 [10,000*(18%/365)*365]

You can see that the interest rate may be higher in the short term but the repayment amount is less. On the other hand, you will have to pay more interest on 12 months EMI.

Reward points, cashback and discount linked losses
Credit card issuers generally do not offer any reward points or additional discounts on transactions converted into EMIs. In such a situation, you should always consider the value of loss on account of reward points/cashback or if you had not opted for EMI convert then you should check out the discounts available on it. If you can save better through offers on non-EMI purchases, then you should think twice before opting for EMI.

Explainer: How to improve your CIBIL Score using Credit Card?

Credit limit block on EMI
Whenever you opt for EMI on credit card, the total transaction amount is deducted from your credit limit and not just the EMI amount. However, as you go on paying the EMI, this amount gets added to your available limit. Whenever you make an EMI on a purchase, then the limit on the card gets reduced at that time and when you pay the EMI in full. Then the full credit limit is restored.

Despite all these conditions, the option of credit card and EMI available on it is the first choice of people for making big purchases but always consider these factors to avail EMI facility so that you do not suffer any kind of loss.

Tags: credit card limit, Loans against credit card

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