Credit Card Payments: Should You Pay in EMIs? A product that comes with perks also has certain disadvantages that can turn out to be very expensive. Take credit cards, for instance. While the use of credit cards as a mode of payment has caught on well, most people dont realise the other side of using credit cards, especially if one does not follow financial discipline. If you spend beyond your repaying capacity, most credit cards charge prohibitively high interest rates - in the range of 36 per cent and 45 per cent - if the outstanding credit card bill is not paid. To deal with this, one may opt for the equated monthly instalment (EMI) route that comes at lower rate of interest. But how hassle-free and attractive this EMI option really is? Lets find out: Does my credit card have the EMI option? Though it may appear too basic a thing, it is important to know whether your card has an EMI facility. Banks such as ICICI Bank, Standard Chartered Bank and HDFC Bank offer EMI cards. Banks permit an outstanding of up to Rs 5 lakh for EMI facility and the rate of interest charged stands in the range of 16 per cent to 22 per cent. However, you should check with your card-issuing bank whether your credit card comes with the EMI facility. If the credit card does not offer EMI option, the customer has to either go for a personal loan or transfer the balance to some other credit card to ensure timely repayment of outstanding, failing which he/she has to bear the huge burden of high interest rate applicable on the credit card. Impact on credit limit Even if your credit card offers EMI facility to repay credit card outstanding, you have some more factors of which you have to take account of. The moment you opt for an EMI repayment arrangement, the credit limit stands reduced to the extent of principal outstanding. However, as you keep repaying through EMIs, the credit limit is freed. To put it simply, opting for EMI can block your spending capacity in the subsequent months. This can be a big factor if you are dependent on your credit card, either to fund your future expense or as a payment mechanism. Processing fee Another factor is the one-time processing fee that banks charge to initiate the EMI option. This fee is charged upfront and adds to the costs to be paid by the cardholder. The fee is generally expressed as a percentage of the loan availed on EMI option, and generally capped at a fixed sum, say Rs 5000. You can negotiate this amount, and if you are a loyal customer of the bank for a long term, banks may choose to waive it. Some banks also offer insurance option to the cardholder. For an extra charge towards premium, insurance companies offer to pay the outstanding principal in case of an eventuality. This ensures payment of outstanding to the bank and a win-win situation for all three - the cardholder, the bank and the insurance company. Besides this, opting for an EMI option can help an individual save his/her credit score from falling. The three factors given above present the advantageous side of paying a credit card bill through the EMI route. But is this the right and profitable way of repaying your credit card bill? The plain answer is no. You must think of the EMI option only if youre on the verge of defaulting a payment. This saves your CIBIL score from going down. Conclusion: It is recommended that one should use the EMI way sparingly as it can be a burden on his/her financials for a prolonged period of time. Too many EMI arrangements also impact credit score adversely and one would be better off using credit cards when the need is essential and purpose is immediate. Simple :More The Gain..when More The pain.... cheers!!!
Posted on: Sat, 22 Nov 2014 05:20:14 +0000
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