Credit Card EMI is a facility that allows you to purchase big items on EMI. You need not spend the entire amount from your pocket at a single go. The entire amount will be divided into equated monthly installments and paid on monthly basis. You require a credit card to opt for this facility.
Festival season has started and many companies are offering credit card EMI facilities. So, if you are facing a cash crunch you can opt for this facility. Recently when I was planning to purchase a refrigerator, I have come across a similar offer in Samsung Double Door Refrigerator. The offer was to opt for Credit Card EMI and get a cashback of 10% after 90 days. In the first instance, it seems to be a lucrative offer. But I decided to do calculations before opting for this offer. When I have done the calculation the actual picture got cleared.
When you opt for Credit Card EMI offer you need to pay the interest rate on the amount borrowed. In my case, it was 13.99% – per annum. So, with the principal and interest amount the amount coming out to be higher. However, with a cashback offer of 10%, it was a beneficial affair.
After going through this purchase experience I decided to share my story and credit card EMI calculation with you. The main objective is to help you in making an informed decision while buying a product with an EMI option.
What is Credit Card EMI – How it works?
Credit Card EMI means converting the entire bill into EMI. This option is available on selected purchases for a limited period only. It is one type of loan offered on large value purchase. This loan needs to be paid in EMI. The credit card EMI contains both principal and the interest component.
- In case you decide to opt for this scheme, the credit card EMI option to be selected by the retailer while swiping the card on the POS.
- At the same time, you need to make choice about EMI tenure. You can opt for 3 months, 6 months, 9 months, 12 months, or 24 months EMI options.
- The rate of interest in this option is usually lower than the credit card interest rate. It will be decided by the credit card company.
- Once you have opted for this facility, your credit limit will be reduced by the bill amount. Every month you need to pay EMI.
- Prepayment or closure facility is not given in most of the cases. In some cases, you need to pay processing fees also.
These types of schemes are offered in collaboration with the vendor or merchant.
Also Read – What is Pre EMI? – Pre EMI vs Full EMI Difference
Types of EMI offered by Banks
Three types of EMI facilities are offered by credit card companies. Zero Interest rate EMI, Low-Interest rate EMI and Credit card EMI with cashback. In Zero Interest rate EMI no interest is applicable. On Low-interest rate EMI, the applicable interest rate is lower compared to credit card interest rates.
#1 Zero Rate EMI
Zero Rate EMI is an option where the loan is offered with a zero rate of interest. In this option credit card company does not charge anything extra and does not earn anything from you. This option is given to selected customers only. It is advisable to go for Zero Rate EMI option.
#2 Low-Interest rate EMI
Low-Interest rate EMI option is offered with a lower rate of interest. The interest rate range in this option is from 13% to 22% per year which is lower compared to credit card interest. You can not make a pre-payment in this case. If you do prepayment you need to pay an additional penalty.
#3 Credit card EMI with Cashback
Under this option credit card EMI facility is offered at lower interest rate. Along with EMI, you will get cashback facility. The cashback amount is offered by respective merchant or manufacture and not by bank or credit card company. Cashback will be credited after 90 days of doing transaction.
Credit Card EMI facility – Calculation
Let’s take an example and do a calculation for the Credit Card EMI facility. Mr. Suresh holds an ICICI Coral Credit card with a credit limit of 1.25 Lakh. He has a requirement to purchase Smart TV. He opts for Smart TV with a Credit card EMI Facility with 6 months EMI option. TV cost is Rs.49000. On the other hand, Mr.Ramesh does not hold any credit card. He also makes a purchase of the same Smart TV by making a one-time payment using a debit card. Another person Mr.Mahesh also holds credit card and he opt for credit card EMI with cashback facility of 15% on same TV.
Calculation –
| Credit Card EMI (Suresh) | Debit Card (Ramesh) | Credit Card EMI with Cashback (Mahesh) | |
| TV Cost | 48331 | 48331 | 48331 |
| Interest rate (13.99%) | 3380 | Nil | 3380 |
| Swipe Charges | 858 | Nil | 858 |
| Total | 52569 | 48331 | 52569 |
| Cashback | Nil | Nil | 7249.65 |
| Total Payout | 52569 | 48331 | 45319.35 |
From above calculation we can clearly say that debit card option or EMI with Cashback option is beneficial.
Pros
- No need to pay money upfront. It will be a deferred payment.
- Zero Cost EMI option is available for the customers.
- The rate of interest is lower compared to credit card interest.
Cons
- You need to pay the principal and interest amount.
- A credit limit will not be reduced until the time you pay your dues.
- In some cases, you need to pay processing costs or swipe charges.
What you should check before opting for EMI option in Credit card?
Interest Rate
You need to check for applicable interest rate. The rate of interest should be low. If required go for low tenure 3 months for 6 months.
Swipe Charges
Another point to check is swipe charges. The swipe charge or processing fee should be NIL or as low as possible.
Prepayment Facility
The credit card company should provide prepayment facility for this option. Pre closure charges should be low or NIL.
Is it advisable to opt for a Credit Card EMI Facility?
The answer to this question is purely based on your financial condition and offer on hand. If you are not in a position to pay upfront money but you have future visibility that you will get money at the regular interval you can go for this facility. Another reason for opting for this facility could be a discount offer or Cashback.
Note – If you opt for this facility make sure that you clear your dues on time.
Once in a while opting for this facility is ok but it should not become a habit while buying any big-ticket items.