Everything You Should Know About Credit Card EMIs
Modern-age financial institutions have made it easier for people to get credit. There are many useful financial tools like a credit card that helps people to avail a pre-approved credit limit. Credit card usage is growing popular among people and more individuals are using it to make online purchases. It is being used for both big and small purchases. Most credit card companies also have attractive credit card EMI options for purchasing goods. One can easily opt for this method and pay the total amount in monthly instalments.
How does a credit card EMI work?
Whenever you make a purchase using your credit card, it will reduce your credit balance by the purchase amount. You will need to repay this amount to your credit card issuer when the due date arrives. The best way to settle your payment is to pay the entire principal amount before the due date. This will save you from interest rates and other unnecessary charges. Alternatively, people pay the minimum due amount before the due date and then repay the remainder as per their convenience by paying a nominal interest amount.
Many a time, you have the option to opt for a credit card EMI to make your purchase. In this case, you have the flexibility to make your payments using pre-decided monthly EMIs. You can also convert some pending balances into EMIs for easing your financial burden. This will attract a nominal interest fee contingent on your amount, rate of interest, policies of your credit card service providers, etc. Credit card EMIs can be used to repay big debts by converting them into payable EMIs. This will also help in improving your credit score.
Charges associated with credit card EMIs
Let’s dig deeper to learn more about credit card EMIs.
- Processing fee
There is a loan processing fee that is charged by banks when you are opting for the credit card EMI option. The loan processing fee can vary depending on your bank and it is usually in the range of 0.5% to 1% of your total purchase amount.
- Interest charges
The credit card EMI option provides users with the flexibility to repay the total amount in up to 36 months (depending on their preferences and card issuer). An interest amount is charged for the EMI and it adds up to the total cost of your purchase. This will increase the total purchase amount in the end.
- Prepayment penalty
Your credit card company can also charge you an additional amount in case of prepayment of the entire loan amount. This charge could be in the range of 2% to 3%, depending on your issuer. This is charged on the outstanding balance on the given date when you are looking to prepay. It is also known as the pre-closure charge.
Types of credit card EMIs
Most banking and non-banking financial institutions that issue credit cards provide two types of EMIs for credit cards.
- Zero-interest-rate EMI
A zero-interest-rate EMI is an ideal option for most buyers since they don’t have to pay anything extra on account of interest charges. All you have to pay is your total purchase amount and the necessary processing charges. Zero-interest-rate EMIs have also increased credit card spending as people have the financial freedom to buy high ticket items and pay later.
- Reduced-interest-rate EMI
The interest charged on reduced-interest-rate EMIs is lower than what credit card companies would ideally charge from users. It can vary in the range of 1.25% to 1.99%, depending on your credit card company.
Tips to leverage credit card EMIs
Here are some important considerations that you must be mindful of when it comes to credit card EMIs.
- Choose a lower repayment tenure
A higher tenure will certainly add to your overall cash outflow on account of purchases made using a credit card. This is because the interest amount will increase with the loan tenure. So, a higher loan tenure will attract additional interest charges.
- Looks for offers
Most credit card companies have interesting discount offers that can help you save money while buying goods or services. At times, you can even get an offer that completely cuts down your processing charges. Always look for offers when it comes to credit card EMIs.
- Go through the T&Cs
You need to read the terms and conditions put forwards by your credit card provider when it comes to EMIs. It will help you become aware of important aspects like pre-closure charges, interest rate, processing fees, etc. Some credit card companies do not charge users for prepayment of the loan amount.
- Don’t default on your EMIs
Credit card EMIs are a great way to ease your financial worries since you don’t have to make an upfront payment for your purchases. However, it is important to know that this can become a debt trap if you fail to pay your EMIs timely. You should never default on your credit card EMIs.