Rapid urbanisation and rising prosperity levels of the middle class has led to a huge demand for modern lifestyle goods and services. Credit cards are a convenient payment mode that helps people to finance the purchase of such products and services.
An individual can buy goods or pay bills using a credit card. It is a short term credit that banks and financial institutions provide to cardholders. There are several modes of repayment, out of which EMI or Equated Monthly Instalments is one.
The following are the different repayment options for credit cards:
Here are the different types of EMIs on credit cards that financial institutions offer:
This option does not involve any interest on the monthly payments. Users do not pay anything extra if they opt for zero-interest EMIs. It is a win-win situation for cardholders as they can avoid the interest on monthly payments.
Under this, the cardholders have to pay a very low interest rate on their monthly payments. The rate varies from one financial institution to another and is in the range of 1-2%. Interest rates are significantly lower than the interest charged by banks when someone defaults on their payments.
Credit cards offering low-interest EMIs are more universally acceptable than zero rate cards.
Also, read –Ways to Pay your credit card bills faster
Make sure to consider these aspects when choosing the EMI option on a credit card:
Financial institutions may charge a handling or processing fee whenever individuals choose to convert their debt into monthly repayments. It is different for each financial institution and can be charged as a flat fee or percentage of the total outstanding amount.
Anyone who opts for this repayment option must have minimum available credit in their cards. The available credit should be equal to or higher than the amount one wants to convert into EMIs. If the available credit does not meet the requirements, the EMI request may be rejected.
Another important thing to keep in mind regarding the EMI option is that the credit card limit is reduced by the principal amount owed. Cardholders cannot spend till the upper limit until they pay off all their debt. The restriction on their card is reduced with each EMI, and it’s completely done away with when the entire amount is paid.
For example, let’s say Mr Akhil Tiwari has a card limit of Rs. 50,000. He has bought a mobile phone worth Rs. 25,000 on EMI. So his upper limit to spend from this card is only Rs. 25,000. It will keep increasing with each EMI, and the original upper limit will be restored once the entire amount is paid.
The following are some of the benefits of availing of the EMI option on credit cards:
An individual can buy any high-cost product and make payment for the same over a period of time.
Cardholders have the liberty to avoid making any upfront payment. They can pay the entire amount in monthly instalments. This reduces financial stress.
EMIs can ease the financial burden on individuals. However, one should consider all the costs and benefits associated with the EMIs before choosing this option.