Credit card EMI payment: Is it better than paying minimum amount due? | The Financial Express

Credit card EMI payment: Is it better than paying minimum amount due?

Credit Card EMI payment, interest rate and conversion charges: Interest charged on balance is much higher than that on EMIs

Credit cards, Credit car payments, EMIs, debt trap, EMI calculator
Handling big credit card bills can be tricky, especially for users having a single source of income.

Rajesh Upadhyay, an IT sector employee in Hyderabad, recently bought medicines worth Rs 43,739 for his ailing father and paid with his credit card. Two days later, the bank’s app messaged an offer that allowed him to convert the transaction into EMIs of six to 24 months.

The bank’s app also has an EMI calculator indicating the monthly instalment Upadhyay would have to pay if he opted for it. As such, the EMI for six months was Rs 7,677.29 and for nine months it was Rs 5,231.67. For 12, 18 and 24 months, the EMIs were Rs 4,009.41, Rs 2,790.79 and Rs 2,183.31, respectively.

As his only source of income is his monthly salary, he thought it would be wise to convert the transaction into EMIs. So, he went for the 12-month option where he will be making a total payment of Rs 48112.92 plus EMI conversion charges and applicable taxes against the actual purchase of just Rs 43,739. Was his decision right?

Big credit card bills

Handling big credit card bills can be tricky, especially for users having a single source of income. While personal finance experts always advise credit card users to never spend beyond their repaying capacities, there are times, as seen in the case of Rajesh, when users have to make some unavoidable high-cost purchases. Credit cards come in handy in such situations. Also, converting such purchases could be a wiser decision than deferring the payment or paying just the minimum amount due.

“Converting large credit card spending into EMIs can be wise in certain situations. This option allows you to pay for your purchases in smaller, more manageable instalments over a period of time, usually with lower interest rates than regular credit card debt,” says Gaurav Chopra, founder & CEO of IndiaLends, a digital lending platform.

However, before going for the EMI option, Chopra says that it is essential to consider the additional costs involved, such as processing fees, prepayment penalties, and potential loss of rewards or cashback benefits.

Use EMIs to avoid debt trap

Experts say it is generally better to convert high credit card bills into EMIs instead of paying only the minimum amount due, as the latter can push the user into a debt trap.

When one pays only the minimum amount due, the remaining balance accrues interest at a very high rate, usually 30%-48% per annum. Also, the interest is applicable from the date of purchase and not the billing or due date. Therefore, the user loses the benefit of the interest-free period when paying the minimum amount due only. However, converting credit card spends into EMIs ensures a structured payback schedule at a generally lower interest rate.

Key points to keep in mind

Interest rates and charges: Different banks have different fees and charges for converting credit card bills into EMIs. Sometimes the same bank charges varying interest rates for different credit cards. Therefore, before opting for EMIs, evaluate your financial situation and understand the terms and conditions of the offer to make an informed decision.

Prepayment penalty: Check if the lender charges any prepayment penalty in case you want to close the EMI before the end of the tenure.

Tenure: Choose a tenure that allows you to pay the EMI easily.

Rewards and cashback: Converting credit card bills into EMIs may result in the loss of rewards and cashback benefits. Evaluate the value of these benefits against the EMI.

Credit score: Converting credit card bills into EMIs may affect your credit score. Consider this and plan accordingly.

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First published on: 17-03-2023 at 04:15 IST
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