All about credit card EMI : How Does It Work and Its Benefits

Credit cards not only extend credit to their users but also provide them with the privilege to repay the debt in full or in installments as per their convenience. Credit cards prove to be the most influential and useful financial tool when it comes to making huge purchases or paying for bills in emergencies. Credit cards have always come to the rescue of its owners. It allows you to spend more than what you have in your pocket. But in order to gain the benefit of these advantages, you need to make use of your credit card in an appropriate manner. The dues aligned with the credit card can be paid off in many ways and one out of these ways is in the form of Equated Monthly Installments (EMI). Yes, credit card dues can be paid in the form of EMIs, which makes it a bit easier for the credit cardholder to clear off his debt. So in this article, we will discuss what credit card EMI is and how does a credit card EMI works.

Also Read: 4 Steps to Pay Off Credit Card Debt

Credit Card EMI

Credit Card EMI (Equated Monthly Installments) is one of the most popular payment methods these days. With this method, you can easily settle the outstanding amount on your credit card in fixed installments every month, just like you pay for any other type of loan such as a personal loan, home loan, etc. Additionally. you have the advantage of purchasing your favorite products which are beyond your purchasing power and paying for them in the form of EMIs over a tenure of 6 months, 9 months, 12 months, 24 months, or even 36 months.

How does a credit card EMI work?

Credit cards can prove to be a great financial tool in case of emergencies but can make you careless as well. With credit cards, you may tend to spend more than what you actually have and end up being in a debt trap. But credit card EMI’s can prove to be very helpful in such a situation. Now, generally, when you purchase through a credit card, you are granted an Interest-free period of 40-55 days within which you have to repay the amount with which you had made the purchases, and no interest will be charged on such purchases if repayment is made within this time frame. But sometimes it is not possible for everybody to repay the full amount within this time frame. Hence, the bank offers you a scheme where you can convert your amount of purchase into EMI which will then become easier for you to repay the debt amount.

These banks offer these EMI schemes to you in alliance with a merchant but for that, you will have to spend a minimum amount as directed by the bank using your credit card. While making the payment, you can opt for the EMI Scheme and choose within how many installments you can repay the amount of purchase – 3 months, 6 months, 12 months, 24 months, or 36 months. But an important point here to note is that your credit card limit will be reduced by the amount for which you have made the purchase. The limit will be reduced by the principal amount and not the whole amount which includes the interest amount as well. The whole amount (principal + interest) is then divided into equal monthly installments on the basis of the number of months you choose.

Types of Credit Card EMIs

Now, these credit card EMIs come in two different types –

• No cost EMI – It is a type of EMI plan in which you just pay for the price of the product in the form of EMI. No interest is charged on such type of plan. You have to pay no additional costs along with the purchase price of the product. Since, as per RBI, loans cannot be provided interest free, hence an upfront discount is given to you which is equal to the amount of interest for that period of time.
• EMI on reduced rate of interest – These EMIs are provided to you at a lower rate of interest as compared to the interest charged on missing a payment. It is like converting your outstanding credit card bill into EMI at a reduced rate for which the bank will charge a processing fee from you.

Benefits of Credit Card EMIs

Although it is always advisable to pay your credit card bill in full every month, there is no harm in converting it into EMIs if the amount is really high to be paid in one month. The following are the benefits of Credit Card EMIs:

• Easy Repayment – The purchasing power of an individual is increased if he has a credit card in his pocket. But if not used wisely, it can put you in a debt trap as well. But sometimes, the overdue amount is so much that you are not able to pay it in full and hence the amount keeps attracting interest charges as well. This is where EMI comes into existence. When you are short of liquid funds to pay off the credit card debt, you can always opt for converting this amount into equated monthly installments for a tenure of 3 – 36 months. With this, the burden of paying the whole amount at once is distributed over several months and hence saves you from paying interest fees and late payment charges.

• Low interest rates –You are charged with high interest rates (up to 3.6% per month) if you fail to repay the amount within the due date. But if you convert your credit card bill into EMI, the interest rate will be reduced. This will hence result in reducing your monthly financial burden.
• No prior approval required –You do not need any prior approval from the bank to avail this facility. All you have to do is to check whether this facility is available on your credit card or not. If it is available, you can request your respective bank to convert your outstanding dues into EMIs and can then start paying the installment amount on the due dates. You do not need any approval likewise it is required in other types of loans such as home loans, personal loans, etc.

• Helps in improving your credit score –With EMI, your bill is divided into equal installments, which is very much easier to pay than paying the full amount all at once. Inability to pay the full amount in time will attract you late payment charges and will also negatively impact your credit score. If you have EMIs activated on your credit card, you will be comfortable in paying the installment amount in time, and hence it will help in improving your credit score.

• Exclusive offers –Merchants collaborate with the credit card issuing companies and provide with you with exclusive offers on the purchase of products through credit cards on EMI. Many products such as mobile phones, watches, etc are covered under this offer.

Bottom Line

Usually purchasing products through EMI is quite instant and is the conversion of the outstanding bill into EMI but the latter one sometimes may take a few days for processing. While you purchase a product through EMI, a part of your credit limit will temporarily be blocked for a certain period of time but will start releasing as soon as you start paying your installments. Now if you have incurred a high debt under your name and you are not able to repay it, it is better that you convert the outstanding debt in EMIs and start paying the EMI amount on regular basis to save yourself from the vicious debt circle which will further badly impact your credit score.