EMIs can help you pay off a credit card bill over a longer period. However, you have to know what you’re getting into. Credit card EMIs are based on your credit profile and interest rates. Prepayment penalties are possible and can block your spending capacity. This article will discuss the benefits and disadvantages of converting big-ticket purchases into EMIs. Here’s what you need to know.
EMIs are spread over different months
Apply for Credit Card EMI is a periodic payment that is made to settle the outstanding balance of a credit card loan. You pay the same amount each month, but the interest charged is higher when you do not make your payment on time. EMIs are calculated using the flat-rate or reducing-balance method, taking into consideration the amount of the loan principal and the interest rate for that particular term.
The EMI is divided into equal instalments each month and is applied to the principal and interest. Credit Card EMIs can be calculated using two methods: by reducing the balance of the outstanding debt, or by calculating interest based on a fixed rate. Either way, an EMI gives borrowers peace of mind and helps them budget their finances. In addition, EMIs allow borrowers to know how much they will owe each month.
Interest rates are based on your credit profile
The interest rate on credit card EMIs differs from bank to bank and is determined by the risk assessment of the cardholder. Credit card issuers base the rate on a cardholder’s credit profile and past repayment history. However, some financial institutions may charge an upfront processing fee for converting credit card bill payment into EMIs. To avoid such fees, it is best to shop around for EMI offers.
Credit score is one of the primary factors that banks use to determine the interest rate you’re charged for a credit card loan. Low credit scores tend to carry a higher interest rate than those with higher scores. Higher incomes generally mean a lower interest rate. However, this does not mean that a lower interest rate necessarily means you’ll save money. A credit report helps lenders understand your credit history and payment history, which is vital when applying for a loan.
Prepayment penalty clauses apply
Most credit card EMI schemes carry prepayment penalty clauses. These clauses can cost you dearly as credit card debts can incur penalties and higher rates of interest. EMI calculation is based on the amount of the remaining purchase amount multiplied by the rate of interest and the tenure of the loan. Processing charges are also included in the calculation. It is advisable to negotiate with your bank for a waiver.
Converting big-ticket purchases into EMIs can block your spending capacity
Whether you need to buy a big-ticket item or just want to treat yourself, you can opt for credit card EMIs. However, this method comes with a number of disadvantages. Credit card EMIs have steep processing charges and late payment penalties. This can severely reduce your spending capacity. Instead, consider paying your big-ticket purchases in instalments.
One of the major disadvantages of converting your big-ticket purchase into an EMI is that you won’t earn any rewards points or discounts on your purchase. In addition, it may reduce your savings capacity. The EMI facility blocks your spending capacity against your credit limit and increases with each payment. The upfront payment adds back the full purchase amount to your credit limit.
Another disadvantage of converting a big-ticket purchase into a credit card EMI is that it increases the total cost of goods. Moreover, converting big-ticket purchases into credit card EMIs can block your spending capacity. Instead of paying a lump sum at once, try to break the outstanding amount into smaller EMIs. Be sure to check the finance charges associated with the EMI before committing to a long-term purchase.
