A credit card can help you grab amazing deals and offers during festive sales. At the time of emergency, it provides an instant credit facility. Having a credit card comes in handy while buying products on sale. It allows you to purchase things without straining your monthly budgets. You also get the option to repay the amount in EMIs if you can not pay it at once. But is it wise to opt for EMI on credit cards? This article will help you understand the functioning of EMI on credit cards in India.
How credit card EMI works?
Your bank earns money by collecting interest. They charge interest if you fail to pay the credit balance before the due date. To attract more customers, credit providers allow customers to make repayments in small EMIs and pay interest. It is beneficial for buyers who require certain products/services but are unable to make full payment immediately. By making timely repayments of EMI, you can increase your credit limit with the bank for future purchases.
What are interest rates involved in credit card EMIs?
Most credit cards in India offer two types of EMIs on products — free zero-interest-rate EMI and low-interest-rate EMI. The late payment interest rates, also called non-EMI interest rates, are applicable when you do not opt for either of these two options.
1. Zero-interest EMI
During sales and offers, your bank may allow you to purchase on zero-interest EMI. It is a win-win for you as you do not have to pay anything extra to your bank, and still get the chance to make the repayment in monthly instalments. In this option, your lender does not earn anything from your EMIs.
2. Low-interest EMI
In low-interest EMIs, banks typically offer you interest rates in the range of 1.25-1.99% per month. This amount is less compared to the interest charged when you default the payment and fail to repay before the due date. However, you might have to pay the processing fee to convert outstanding to EMI and pay prepayment charges if you choose to prepay.
How to decide whether to opt for an EMI or not?
Your choice of making repayment using EMI should depend on how long you need to repay the amount in full. If you need more than three months, go for an EMI, as it will help you manage your finances along with small repayments. If you need a month or less, try to look out for other options to make the repayment in full.
Do EMIs affect your credit limits?
Yes, as you have monthly outstandings, your bank will reduce the credit limit by the amount of your EMI. So, do make sure to settle the outstanding of every month along with your EMI. Defaulting on your monthly EMI can reduce your credit score, which can further dent your credit limit.
Conclusion
Credit cards in India can help you avail of incredible discounts and offers. You can buy products and services and make repayments in small EMIs without having to apply for a loan. Credit cards can be very handy for utilizing instant credit during emergencies.
