We are bang in the middle of the summer season and the air is abuzz with fantastic sales and amazing discount deals. Everyone from your neighbourhood friendly store to your favourite online shopping giant is offering deals galore. And if you have a Credit Card, you can club steep discounts with cashback offers too. Isn’t that just great?
Shopping with a Credit Card has another perk. When you make a big purchase, maybe that 52-inch LED TV you’ve been eyeing, the Credit Card EMI option could be a life-saver.
Having second thoughts about the Credit Card EMI option? Or are you just opting for it even when you can afford a cash payment?
Let’s take a look at how the Credit Card EMI scheme works.
Additional Reading: What Is EMI And How Is It Computed?
Cash Down Or Credit Card EMI Scheme?
Two friends, Steffi and Shipra, decided to buy the same smartphone that cost Rs. 50,000 on their favourite e-commerce site. Steffi opted for ‘Cash On Delivery’ while Shipra chose the ‘Pay In Easy EMIs’ option as her Credit Card company had a special tie-up with the e-merchant.
Let’s see how their decisions worked out:
Steffi got a 5% discount using a coupon code and ended up paying Rs. 47,500 in cash instead of Rs. 50,000. Shipra, using her Credit Card, paid just Rs. 2,496 upfront and owned the phone.
So who got the better deal? Shipra? Probably not.
Shipra opted for a tenure of 24-months to repay the amount, because she could not afford more than Rs. 2,500 per month considering her other expenses. She pays Rs. 2,354 to the bank every month for the next 24 months. This means, her total repayment comes to Rs. 56,500. This is because the bank charged a 13% interest on the borrowed amount for offering her the convenience of easy repayment.
In addition, the bank also charged 0.5% of the borrowed amount as processing fee for facilitating the EMI option. The processing fee, which is 0.5% of Rs. 50,000, would come to Rs. 250.
So, altogether, Shipra is paying back Rs. 56,750. (Rs. 56,500 + 250)
| Steffi | Shipra | |
| Cost of mobile phone | 50,000 | 50,000 |
| Discount | 5% | Nil |
| Amount after deducting discount | 47,500 | 50,000 |
| Interest rate (13%) | Nil | 6,500 |
| Processing fee | Nil | 250 |
| Total repayment | 47,500 | 56,750 |
| Amount saved by Steffi (56,750 – 47,500) | 9,250 | Nil |
Here, Shipra enjoyed the convenience of an easy repayment, while Steffi reaped the benefits of savings.
Additional Reading: EMI on Credit Cards – Is it worth it?
This example doesn’t imply that one payment option is better than the other, but it states the pros and cons of two available options.
If you have ready cash and can afford to make a big fat payment, then cash seems like a good option. But if you have a tight budget, where a lot of your savings are being funnelled towards investments and bill payments, then a Credit Card helps you buy what you want in an affordable way. Though Shipra payed more for the phone, she did not feel the brunt of it due to the affordable size of the EMIs.
How Does EMI On A Credit Card Work?
The advantage of shopping with a Credit Card is that you get an interest-free period of 45-55 days, depending on the bank, to repay your bills. The interest-free period begins with the first day of the statement period (or billing cycle) and usually ends 15-25 days after the last day of the statement period.
Now, it may not be feasible for everyone to pay back within the interest holiday period, especially when you are making a large purchase. So, banks offer help through EMI schemes.
Usually, EMI schemes are issued in collaboration with a vendor or merchant. To use a Credit Card EMI scheme, you need to make a purchase for a minimum amount as specified by the bank.
Once you opt for the EMI scheme, the amount can be repaid in easy instalments as monthly EMIs over 3 months, 6 months, 9 months, 12 months or 24 months – depending on your choice. The rate of interest for a Credit Card EMI scheme can vary with each bank.
Additional Reading: Credit Cards If You’re Earning Less Than Rs. 20,000 Per Month
Charges To Look For
| Processing Fee | To facilitate Credit Card EMI option, banks charge a loan processing fee upfront. The loan processing fee varies from bank to bank and is usually 0.5% to 1% of the amount of your purchase. |
| Interest | Credit Card EMI facility allows you to repay in easy instalments up to 24 month tenure. Some cards allow up to 36 months. The interest will increase the final price of your purchase. |
| Pre-closure/prepayment penalty | If at any point you have enough surplus cash and feel like closing out your Credit Card EMI loan, you are likely to be charged 2% to 3% of the outstanding balance as pre-closure charges, depending on your card. |
Tips To Make Credit Card EMIs Work For You
Choose a lower tenure – The higher the tenure, the more will be your cash outflow as interest. So choose a minimum tenure within which you can conveniently repay the amount.
Be watchful – Some Credit Cards offer EMI options without processing fees, especially during festive seasons. Make use of it.
Read the T&C – All cards do not charge penalty for pre-closure. Understand the terms and conditions of pre-closure before deciding.
Don’t be shy to ask – Opting for Credit Card EMI may not get you the cash discounts on offer, especially in the festive season. Many retailers offer discounts on products bought straight up by cash/card only. However, request the retailer for some discounts, and chances are you could get lucky as the festive season brings with it good cheer and generosity!
Avoid defaulting – Don’t default on payments when you go the Credit Card EMI route. Failing to pay your monthly EMI will negatively impact your Credit Score.
Additional Reading: How To Look For The Right Credit Card
There you have it. Use the EMI scheme on your Credit Card with discretion and you’ll be all set to make the most of this sale season.
And if you’re looking for a Credit Card, don’t be afraid to explore and apply for FREE!