Credit Card EMI

Converting your credit card purchases or dues into EMIs might be a good option for a lot of people. But, there are pros and cons of each and everything. Similarly, this facility also comes with several pros and cons as mentioned below:

Pros of Credit Card EMI Conversion

Deferred Payment: Customers can make high-ticket purchases but they do not have to pay off for it at once. Instead, they can gradually pay off the amount over months or years in installments and as per their repayment capacity.

Low Upfront Financial Strain: Since customers don’t have to pay the full amount, they don’t face the full financial strain upfront. This is especially beneficial for cardholders who have fixed monthly income and a strict budget.

No-cost EMI: Certain banks have collaborated with merchants to provide EMIs that don’t charge interest or processing fees. If customers are given this option, they should opt for it instead of the normal EMI conversion.

Cons of Credit Card EMI Conversion

Interest Charged: Banks and NBFCs do not provide EMI conversion facility for free. Interest, along with a processing fee, is usually charged by all providers. Generally, credit card EMI interest rate starts from 12.5% per annum and it varies from bank to bank. This incurred interest can eat up customer’s savings especially if a longer tenure is chosen.

Blocked Credit Limit: The transacted amount is blocked against the credit limit and released upon the payment of EMIs. Therefore, the available credit limit temporarily gets blocked.

Increased Credit Utilization: The converted EMI amount remains blocked against the credit limit. This results in a reduced available credit limit and all new purchases will use the remaining credit limit. This will increase the Credit Utilization Ratio (CUR), and if it goes over 30% then the customer’s credit score will fall.

“Experts suggest that customers should use less than 50% of their credit limit to maintain a good credit score”

Most of the credit card providers allow customers to avail this facility post purchase or at the time of purchase. You can apply for credit card EMI conversion in two ways, which are mentioned below:

Merchant EMI Conversions

Cardholders can convert their purchases into EMI at the time of payment. This can be done for both online and retail purchases. Just ask the cashier for the EMI payment option at the time of payment. In case of online transactions, select the ‘Pay via EMI’ option to avail this facility. Note, that the merchant EMI option may be available only with selected merchants.

Post Purchase EMI Conversion

If cardholders are not able to convert their purchases into EMIs at the time of purchase, then they can opt for a post-purchase EMI conversion facility. Different banks have given different names for this facility. For example, HDFC Bank Smart EMI, SBI Card Flexipay and more. The terms and conditions may also differ from one provider to another. You can opt for this facility from net banking or mobile banking. Additionally, some banks also allow cardholders to convert their purchases into EMIs through customer care or SMS.

The fees and charges associated with credit card EMI conversion varies from bank to bank. Sometimes, same bank charges different interest rate for different credit cards. However, the interest rate, processing fee and pre-closure charges for some of the top credit card providers are mentioned in the table below:

Credit Card Provider	Interest Rate	Processing Fee	Pre Closure Charges
Axis Bank	18% p.a.* | 13% p.a. onwards**	1.5% of the amount (Min. Rs. 150)	3% of the outstanding amount
Bank of Baroda	18% p.a.* | 13% p.a. onwards**	2% of the amount (Min. Rs. 100)	3% of the outstanding amount
Citibank	24% p.a.* | 13% p.a. onwards**	2.5% of the amount (Min. Rs. 200)	3% of the outstanding amount
HDFC Bank	18% p.a.* | 15% p.a. onwards**	1% of the amount (Min. Rs. 150)	3% of the outstanding amount
ICICI Bank	15.96% p.a.* | 12.99% p.a. onwards**	2% of the amount	–
RBL Bank	13% p.a. onwards**	–	3% of the outstanding amount
SBI Card	22% p.a.* | 14% p.a. onwards**	2% (Min. Rs. 99 | Max. Rs. 1,000)	3% of the outstanding amount
Standard Chartered Bank	Starts from 12.96% p.a.* | 13% p.a. onwards**	1%	Nil

* Post Purchase EMI interest rate | ** Merchant interest rate.

Disclaimer: Merchant EMI interest rates shown above are sourced from Amazon.in. Different rates may be offered on other platforms. Also, banks reserve the right to change the rates without prior communication.
Post-purchase EMI interest rates offered are subject to differ from one customer to another. Check with your card provider before applying.

Converting your big-ticket purchases into EMIs can definitely be a relaxation for a lot of people. However, before opting for the same, cardholders must consider the below-mentioned things:

Tenure: Banks typically offer low-interest rates on longer tenures; the EMI installments are also smaller. This makes them appealing. However, users should avoid this option as it will lead to higher interest payments. The below-given illustration will make this clear.

Assumptions made:

• Interest on 3 months’ tenure: 25% p.a.
• Interest on 12 months’ yenure: 15% p.a.
• Purchase amount: Rs. 40,000

Now, the payable interest amounts for different tenures are:

Tenure	Payable Interest Amount
3 months	Rs. 2,465.76
12 months	Rs. 6,000

Clearly, the shorter tenure is the best option to go with.

Credit Card Provider: Different credit card providers charge different interest rates. At times, credit cards from the same bank may charge a different interest rate. Hence, customers who have multiple cards should compare the interest rates on each of their cards before opting for EMI.

Lost Benefits: Sometimes merchant EMI conversions may lead to the loss of other benefits like reward points or discounts. If these benefits are significant then it is advisable that customers should make an upfront payment instead of EMIs.

Timely Payments: You should choose the EMI option where timely payments are easy because partial or missed payments may outweigh the EMI benefits. They might have to face the below-given issues:

• Lost Interest-free Period: EMI conversions don’t lead to the removal of interest-free periods but missed payments do. Therefore, it is important to make timely payments.
• Credit Card Interest Rate: Credit card interest rate which is generally about 42% p.a. is applied when cardholders don’t clear their bills by the due date. This is charged on top of the EMI interest rate. This will lead to significant interest accrual which in turn will drain customer’s savings.
• Credit Score: Banks will report any missed payments to the credit bureaus like CIBIL and Experian which will lead to a lowered credit score. Hence, choosing a plan where you can make timely payments can help you in building your credit score.

How does credit card EMI work?
Usually, credit card EMI conversions are instantaneous but sometimes it can take a few days. The purchase/ outstanding amount is blocked against the credit limit. Afterward, you will have to pay the monthly EMI amount which will be reflected in your credit card statement. Once paid, the EMI amount will then be released from the blocked limit.

Do banks levy a processing fee on all credit card EMI conversions?
No, not all banks charge a processing fee while converting your purchases into EMIs. There are several banks that provide this facility without any charges. However, in some cases, you can also opt for no-cost EMI.

What if I pay more than my EMI amount?
If you pay more than the bill then the surplus amount will show up on the next credit card statement.  It will be adjusted against the outstanding amount of the next month.

Can I pay off all the EMIs on my credit card in one go?
If you want to clear all your outstanding EMIs you will have to place a request to pre-close the EMI. In this scenario, you will be charged a pre-closure fee, which is usually about 3% of the outstanding principal amount. Also, the full amount will show up on the next month’s credit card statement if you don’t clear the bill by the statement generation date.

I don’t have a credit card. How will I make purchases on EMIs?
Customers who don’t have a credit card can convert their outstanding amount into EMI using the debit card EMI feature. This service is provided on debit cards of certain banks only. Also, this facility is not extended to all the debit cardholders of a bank.

While shopping online, will I be given a no-cost EMI alternative on exchanging an old item to buy another one?
The terms and conditions for no-cost EMI option vary from bank to bank as well as from merchant to merchant. We advise that you read terms and conditions carefully before exchanging items.