Some fascinating reasons to do so are:
- While with a debit card your account is debited immediately, a credit card provides a credit period during which money in your bank account earns interest.
- Your card transactions help you earn loyalty points those that can be redeemed for various benefits
- At times you get an additional discount for using your credit card, if there is an offer on your card; for instance a cashback offer.
- And ofcourse, with every credit card comes a higher purchasing power.
So you will agree that many people spend using their credit cards even for high value transactions. Now the question is, should one opt to convert high value transactions (those that exceed Rs. 5000) into EMIs? Let us examine the pros and cons of it in detail.
Arguments in Favour
- Converting an EMI makes it simpler to manage as the card holder is not burdened to pay it off in a single month. The amount is split over a period of time, say three, six or twelve months.
- Normally credit card companies levy heavy interest on outstanding bill amount; something to the tune of 42%-46%. However, with an EMI option the interest rate can be much lower – to something between 14% and 18%.
- You can save money by keeping it in your bank account, where it earns interest continuously, while you repay your card bill in instalments.
- Helps gradually build your CIBIL score. Some people might find it difficult to pay a huge amount in a single shot. There could be a possibility of default due to lack of ability to repay, and not due to lack of intention to repay. Converting to EMI helps avert such a disastrous situation.
- Newly married Maneesha observed, “You need not invest in costly personal loans or mortgage an asset with a bank to pay for your needs.” When Raj and Maneesha bought furniture for their new home they were contemplating taking a personal loan which would have cost them around 19%. Instead they used their Citibank IndianOil credit card to pay for their expenses, earned fuel points and converted their transactions into EMIs at 14%. “For us it is the best credit card”, she says with a smile.
- It blocks the credit limit for the amount of purchase. For example, Suresh bought an iPhone 7 worth Rs. 75, 000 in October 2016 using his ICICI bank Coral Credit Card. His card limit was 1 lakh. His available limit was reduced to Rs. 25K. He requested to convert this amount into EMIs of 7, 670 for 12 months.
Every month his credit limit would be released by 7,670 only. This means that his limit was blocked for 12 months and that he could not use his card to place another high value Amount until enough limit was freed.
- Bank’s charge a one-time processing fee for converting the transaction into EMI. The fee is usually a percentage of the transaction amount. Most people fail to account for this fee in calculation of interest to be paid. Actually your net cost of converting into EMI is higher.
- It would be a better choice to pick a smaller loan, such as a loan against FD, small personal loan or gold loan at a lower rate of interest and pay off the entire card bill in a single go. This will certainly be a cheaper alternative and also provide you with peace of mind.
- Not all credit cards offer conversion to EMI option. You must check with your bank or read the product checklist carefully to see if your card issuing bank will allow you to convert your large amounts into EMIs.
- Some banks may allow you to convert to EMI but they may not allow you to prepay it. If you insist, banks may allow you to foreclose the EMI upon payment of an additional fee of 1% or 2%.
All in All
Converting to EMI is, unquestionably, an alluring option. But is it the best option? Well, one can conclude that never opt for it without calculating its real time benefits. Are the benefits superficial? Is it ok for you to block the credit limit? Or would you rather keep it free and available for future use? If you don’t convert to EMI, can you arrange for cheaper funds? If not, then what will be the impact on your CIBIL score?
Consider the answers to all these questions and only if you feel the pros outweigh the cons for you then make use of this very helpful option.
The post What You Should Know Before Opting For EMI on Credit Card appeared first on Credit Sudhaar Blog.