Credit Card EMI: How does it work and what are the benefits?
Credit card EMIs enable users to convert large purchases into manageable monthly payments, easing budgeting. This article explores factors influencing credit card EMIs, interest calculations, and the importance of responsible credit card use to avoid unnecessary debt.
Although the facility of using a credit card to make purchases can be very convenient, the cost of an expenditure of a large amount may often be unbearable to bear. The EMI option lets you split big payments into smaller payable sums that are payable over a fixed period of time. This article details the major factors that determine your credit card EMI, interest calculation, and how credit card EMIs work.
What is EMI?
An Equated Monthly Instalment (EMI) is defined as the amount paid by a borrower to a lender every month in a fixed sum over a specific period to repay a loan. EMIs make budgeting easier and more predictable because a loan gets repaid in equal fortnightly instalments, which cover both the principal as well as interest.
How does credit card EMI work?
Credit card EMIs are instalments which allow you to split a big purchase into manageable chunks. This is how it works:
- You can convert your purchase into an EMI when you make the purchase.
- The value of the transaction is split over a period of time that you have chosen in equal instalments.
- At checkout, or through the mobile application of your bank, or even by reaching out to the customer service department, you can choose the EMI option.
- Pay out monthly until all the debt is paid off and the interest rate and duration are fixed.
- EMIs make dear things affordable since you can split the cost of the item to be purchased into smaller portions of time rather than paying for the whole amount upfront.
Key factors to consider before opting for credit card EMI
- Interest rates: Compare interest rates from multiple credit card companies to ensure you get a good deal.
- Processing fees: If some banks are charging a processing fee to convert transactions into EMIs, then add that as well.
- Options for tenure: Based on your financial conditions, you should choose a tenure. Longer tenures will make the total amount of interest payable higher but will reduce the EMI amount.
- Effect on credit limit: Look after your credit utilization ratio as lending towards a purchase converts your purchase into EMIs and consequently affects your available credit limit.
How can credit card payments be converted to EMIs?
Follow these steps to convert your credit card payment into EMI.
- At the counter, when shopping, check if there is an option for the EMI.
- You can convert an existing transaction into an EMI through the mobile app of your bank or by contacting their customer service.
- To make payments easier for their customers, many retailers provide EMI options.
- The EMI break-up will reflect on your monthly account, and interest charges will be levied as per the EMI terms of your bank.
- The bank checks your eligibility for the EMI facility before granting the conversion.
In conclusion, credit card EMIs therefore ensure effective management of major expenditure because they break down the huge costs into petty regular payments. The total cost of a transaction must be considered, therefore, when making an EMI so that interest and processing fees must not be ignored. Despite being able to alleviate strain on the wallet, EMIs also stress the importance of using credit cards responsibly as a means of avoiding pointless borrowing.
(Note: Using a credit card carries its own set of risks)
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