Planning to make a large purchase but finding it a financial burden? Going through sudden emergencies? You can consider the credit card purchase that allows you to pay off the total transaction value in monthly instalments. Credit cards are among the most used financial instruments by individuals. Credit cards allow the users to repay the purchase amount in instalments as per their comfort. Here is how credit card EMIs work and rescue their users from huge payments. Let us see how to use credit cards to make your purchases easy.
Suppose your monthly income is Rs.70,000, and you need to buy a household item worth Rs. 2 lakh. You can buy it with your credit card, without worrying about repaying the whole amount of Rs.2 lakhs next month. Your credit card allows you to divide the transaction amount into small EMIs as per your repayment capability. In this example, you can pay ten instalments of Rs. 20,000 each. This way, you can buy something that is beyond your monthly budget and repay the amount without burning a hole in your pocket.
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Understand how credit card EMI works
Credit cards allow you to split the purchase value of an item you bought into convenient EMIs right at the time of purchase. You can make the down payment if you have some funds and choose to convert the remaining purchase amount into EMIs. Here consumers should know that the EMI conversion depends on various deciding factors. The primary factor is the eligibility of the credit card holder to convert his/her bill into EMIs. A credit card bill is considered a loan. Therefore, before lending to an individual, banks ensure that the cardholder is able to repay the amount in its due time. The credit card bills can be paid in parts as per your need. The bank checks your credit history and score, your current debts, etc., and decides on your eligibility for EMIs on credit card bills. As soon as the user converted the bill into EMIs, the card limit would be reduced by the amount of your purchase value.
What to Know While Converting Credit Card Bills into EMIs
Interest Rate
Interest Rate Credit card holders need to pay interest on the credit card bill amount. The purchase value of the item bought using a credit card plus interest on the purchase value gets converted into EMIs. The interest rate differs with different credit card issuers. The interest rate depends on various factors. Some of these are down payment, repayment duration chosen by the cardholder, etc. A short-term repayment tenure can reduce the interest rate. Therefore, credit card users prefer to repay the loan amount within a short period. Most banks calculate interest on EMI by using a reducing balance method where interest is calculated on the remaining loan amount at the end of every month. It reduces the interest amount that one needs to pay on a credit card monthly bill.
Repayment Tenure
The repayment tenure can be between 6 to 24 months. It is flexible enough to repay the credit card bills. It is always better to choose a shorter tenure to reduce interest.
EMI Processing Fee
EMI Processing Fee You may or may not need to pay a small processing fee for converting the credit card bill into EMIs. It depends on the card issuer. Generally, banks waive this processing fee. You can make your purchases during the festive season to reduce the EMI cost.
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Opt for Online Purchase
Online stores and merchants increase their sales by connecting with various merchant banks. They offer discounts to customers and numerous good deals to credit card users. You need not pay extra to big brands.
Foreclosure Charge
Many times, credit card users are able to manage to repay the pending bill amount before the repayment tenure gets over. In the case of loan foreclosure, banks may charge fees. It varies by the bank that can be a percentage of the outstanding loan amount. However, a few banks may not charge such fees. Still, it is a good idea to prepay your loans to avoid high interest.
Availability of the EMI facility
The EMI facility is not offered with every type of credit card. Also, the EMI facility is a matter of the card user’s eligibility. Every user is not eligible for converting credit card bills into EMIs, depending on the credit card requirements for eligibility with the bank.
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Thus, EMI on a credit card is a handy option to buy something that your bank balance doesn’t allow at a point in time, like a high-end laptop or that diamond necklace you have had your eye on. Thanks to the EMIs on credit cards, you need not think too much. Keeping the factors mentioned above in mind is a good act to manage your credit card bills effectively. Pay back your big purchases in flexible and easy instalments.
