When you make a high-ticket purchase with your credit card, you may receive a message from the card provider asking if you’d like to convert the purchase into smaller EMIs.
Using credit card EMIs has become a common method for making expensive purchases more pocket-friendly. However, the EMI option comes with its charges including processing fee, interest of reducing balance, and penalties for delayed payments.
Here, let’s take a look at things you need to know before opting for the credit card EMI option, including some tips and tricks to make the EMIs easier on your pocket.
1: Know that not every credit card has EMI facility
If you are planning to use the EMI facility, check whether your credit card it. Many credit card owners realize this at the time of making a purchase. You should check and ascertain this while signing up for a credit card, and determining what the terms and conditions of EMI payments are.
2: Your spending capacity gets limited with EMI purchase
Let us say you bought a gadget worth Rs 45,000 with the EMI facility. Now, you may think that since you have opted for a six-month or nine-month EMI tenure, your overall spending capacity is not affected. The fact is that as soon as you opt for EMIs, your credit limit is reduced to the full principal outstanding amount. So with a credit card limit of Rs 50,000, a purchase of Rs 45,000 brings your limit down to Rs 5,000. As and when you repay the amount, the credit limit rises progressively.
3: You can negotiate the EMI processing fee
When you exercise the EMI option, you are charged a one-time processing fee by your bank. The fee can range from a small percentage of your loan amount to a fixed sum depending on your card and the purchase amount. Many card holders may not be aware that they can actually negotiate with their bank and even get a waiver provided based on their brand loyalty and impeccable repayment history. If you think you fit the bill, feel free to discuss it with your bank and try to get a waiver to reduce your purchase charges.
4: Opt for online purchase
Online sellers tie up with merchant banks to offer the EMI option to promote online sales. If you are looking for a purchase through credit card EMIs, check with various online marketplaces such as Amazon. You can not only get a deal but also discounts by bypassing the cost of retail commission. You can also get a better EMI deal ranging from three to 12 months.
5: You can get prepayment penalty waiver
Credit card EMI schemes may have a prepayment penalty clause where you get charged an amount for pre-paying on your outstanding principal amount. But as a bank’s loyal customer and credit card holder, you can negotiate with your bank for a waiver of this penalty. The banks have the discretion to agree to your request. For example, if you are migrating out of India and want to pay off all your dues, being a loyal bank customer with a good track record gives you the freedom to negotiate the waiver.
6. Always settle your due payments in full
Credit card debt is a very expensive. Hence it is absolutely important to make your due payments in full and not leave outstanding balances which will earn you penalties and interest. While 2-3% interest a month may sound tame, it can be as much as 25-40% when annualised, making it more expensive than other forms of debt such as personal or home loans.
Using the EMI option is a good way to ensure you are able to maximize your credit card usability. Negotiate with your bank to bring down associated costs and make the most of the benefits available to you.
The author is CEO, BankBazaar.com