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Many credit cards allow converting large purchases into equated monthly instalments (EMIs) for an additional fee.
Interest charges and fees can increase your overall repayment amount.
Converting a large credit card transaction into Equated Monthly Instalments (EMIs) is an effective way to clear the debt without much hassle. Many credit cards offer the EMI facility, allowing cardholders to split a large purchase into smaller and more manageable monthly payments.
With the credit card EMI facility, you can spread a large amount into smaller instalments over a pre-determined period. Though many credit cards come with a zero EMI option, most card issuers levy additional fees and interest charges on EMI conversions.
To understand how the credit card EMI feature works, let’s see how you can use the facility for a transaction amount of Rs 1,00,000.
For a period of 12 months at an interest rate of 10% per annum, you have to pay Rs 8,792 per month. The total interest charges will be Rs 5,499. The credit card issuer may also levy an EMI conversion fee.
When You Should Use Credit Card EMI
A credit card EMI could be a smart and effective repayment option, but cardholders must factor in various aspects before determining whether they should use the feature or not.
Expenses: In case of an emergency like a medical bill, if you are paying a large amount using a credit card, you can later convert the amount into EMIs. You can manage your expenses without depleting your savings.
Low-Cost EMIs: Most banks and credit card companies offer their credit card users low-cost or no-cost EMIs during festive seasons or special promotions. Such a purchase helps you save money on interest charges. However, credit card holders are advised to check if there are hidden charges involved.
Liquidity: Cardholders may prefer keeping a portion of their savings liquid for unexpected expenses or investment opportunities. This is where credit card EMIs could be useful, allowing you to make high-priced purchases without draining your cash.
While there are many advantages of the credit card EMI facility, cardholders must use this on rare occasions to avoid a debt trap in the long run. Multiple EMIs can also negatively impact your credit score while making it difficult to manage your monthly expenses.
Credit Card EMIs may also leave you susceptible to impulse purchases, leading to a debt trap in the long run. So, it’s advisable to evaluate all factors carefully before opting for a credit card facility.
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al…Read More
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al… Read More
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