Hefty credit card bills take you on a guilt trip too?
Say no more, because you can now spread your impulse shopping bills over the months and pay them accordingly, through a Credit card.
Or else, if there’s any costly purchase requirement that can’t be postponed and you don’t want to get into the loan hazards, the EMI option on Credit Card can be your go-to option. But with due diligence, because it may come with other hidden repercussions as well.
Hence, before you get your hands dirty on any of the alternate payment options, it’s crucial to learn the feasibility of the EMI option on the credit card.
Come, let’s dig in to find how far these EMI options on Credit cards are valid?
But first, let’s see in how ways Credit Cards can be remitted.
Repayment options on Credit Cards
Credit card bills provide you the liberty to remit the bill in three ways. Each one comes with its own inherent benefits and cost. Let’s analyze all of the repayment options in detail
- One-time payment: It’s the simplest and easiest option wherein the whole of the bill is repaid in one shot without attracting any interest. But it has to be paid timely or else would attract interest.
- Part-payment: On the contrary, this option requires you to make a part payment and then make the remaining payment via monthly installments.
- EMI option on Credit Card: This option helps with scattering your whole credit card bill into EMI (Equated Monthly Installments). It depends on various factors like down payment, time period, interest rates, and most importantly your credit score.
As this option is not much talked about in comparison to the former two, let’s dig deep in to know how it differs.
Ok, so how does Credit Card EMI option work?
So to make Credit cards more desirable, banks came up with an option to provide an EMI payment option on the final bill of the expenses. This works as if the bank has provided a loan to the user in exchange for a monthly repayment option.
Sounds good? But not until the interest rates decide to step in.
The interest rates however depend upon the credit card bill amount that gets converted into EMIs. So, in a way, banks charge interest in exchange for the flexibility that it provides regarding the scattered payment option. Also, it is only applicable to selected and authorized purchases or on the outstanding amount of the credit card bill.
Remember the other costs that determined the EMI rates? If not, here are two of them that plays a crucial role in considering this option.
- Processing fees:
Every bank’s best friend is the processing fee which they levy for converting the bill amount into EMIs. Though it’s a one-time payment, it’s levied either as a flat cost or as a proportion of total outstanding fees.
- Credit limit reduction:
This implies that when you choose the EMI option to pay off the bill, your credit limit is reduced up to the amount of principal. This debt eventually decreases when you make EMI payments. Having said that, keep in mind that until and unless this debt is paid off, you cannot increase the credit limit.
While this might seem attractive upfront but it’s not available to all of the Credit card users. Only a handful of banks offer this service to their regular and credited customers based on their credit scores and past records.
Also, you are advised to keep a check on the foreclosure and cancellation fees in case you want to repay the whole amount before the cessation of tenure. This keeps the picture clear for you to avoid extra penalties for early payments.