Know Everything About Credit Card EMI: Do’s & Don’ts

The credit card market in India is very established and soaring in the contemporary time. As per reports, there were around 86 million credit cards active in India as of April 2023. The trend is going upward because a lot of banks and eCommerce websites are launching co-branded credit cards to attract customers based on the varied spending needs to capture a bigger market.

Credit card EMIs are a great option for individuals who do not have enough disposable income to pay for a high-end purchase. These types of credit systems are a great way to split the bill into manageable monthly payouts. However, these options lower the credit card limit by your EMI amount, which might not be a viable option for some consumers.

What does credit card EMI mean?

A credit card EMI (equated monthly installment) is a way to split the bill on your credit card after a big purchase into small monthly installments that are pre-decided by you. These installments are determined after you make a down payment. The duration of the EMI can range from 3 to 18 months. Typically, every credit card EMI transaction includes an interest amount that must be paid alongside the principal amount each month. Some banks also provide interest-free EMI options, especially when the retailer and bank have a co-branded offer, or they want to match the competitors’ offers to capture the market. There are additional charges, such as processing fees, that may increase the final amount. Credit card EMIs are offered only when an individual is eligible for such an option. The eligibility criteria are based on factors like credit limit, credit score, repayment history, etc.

Read more on how credit card EMI works.

Different Types of Credit Card EMIs

Credit card EMIs can usually be opted and considered for depending on the requirement, the purchased item, and the credit card in possession. Most banks and financial institutes generally offer two types of credit card EMIs, which are:

1.No-cost EMI: The majority of banks and payment institutes provide consumers with no-cost EMI options. When you choose a no-cost EMI, you do not pay any interest. No-cost EMIs are available only on certain credit cards and for specific retail chains or shopping items. At times, such transactions are subject to a threshold limit of money spent.

2.Low-cost EMI: This is one of the most popular types of credit card EMI because companies provide lucrative offers with low-cost EMI options. In this case, the customer only pays a small interest fee calculated based on the EMI amount. However, if any EMI is missed, the rate may change depending on the terms and conditions. The interest rate of credit card EMI is often lower than other options available in the market.

The Dos of Credit Card EMI

Credit card EMIs appear to be manageable, but there are several factors to consider before plunging into it. Here are some basic do’s for credit card EMI:

• Do Understand the Requirements

First and foremost, you must understand how credit card EMIs work. It is critical to have a basic understanding of what to expect. Every credit card EMI has four types of costs: the principal amount deducted each month, interest, processing charges, and prepayment fees. When you convert your payment into an EMI before making a purchase, your chances of receiving a lower interest rate are high. However, if you convert it into EMIs later due to financial constraints, you will most likely be required to pay a high interest rate. To manage your EMI effectively, you should be aware of your current liabilities, as this will help in calculating your monthly payouts.

• Do Collect and Investigate Options

Before making a decision, always try to research and find all available options in the market. There are many businesses offering such options with low interest rates and processing fees, so ground research is mandatory. Many credit card companies constantly rotate offers such as rewards and cashback when converting your purchase to EMIs. This can also happen with co-branded credit cards, which provide better rewards when a purchase is made from a partner merchant. Keeping an eye on these options can help you get a great deal with lower interest rates and the opportunity to earn rewards and cashback.

• Do Understand Clauses and Conditions

When it comes to credit card EMIs, there are several conditions and threshold values that must be met in order to qualify for the EMI payouts. Every credit card company provides an EMI option up to the limit of your credit score. Knowing the low and high values of the eligibility criteria will assist you in determining the down payment and monthly EMI (principal + duration). Your credit score, repayment history, and other background information are also important considerations when pursuing these options. Apart from that, basic information such as your age, income level, and employment type can make you eligible or not eligible for such schemes.

The Don’ts of Credit Card EMI

• Do not miss on payments

Missing an EMI can adversely affect a lot of things. Firstly, it will greatly hamper your credit score, and your repayment history will show this dark spot. Secondly, your interest rate will shoot up, which will make you pay more than you anticipated for the rest of the payments. These two things can pose both current and future problems for your credit health.

• Do not set the wrong tenure

The most important thing to avoid is setting an incorrect repayment period for your credit card EMI. If you choose a shorter duration and are unable to pay the higher amount, you will be required to bear the above-mentioned costs. However, if you choose a longer duration and realize that you can pay the sum quickly, then you might have to pay a prepayment cost. Analyzing which option is best for you and sticking to it should be your top priority when it comes to credit card EMIs.

Credit card EMIs can be a great way for wealth management per se, but there are intelligent decisions involved. The onus is also on institutions issuing credit cards to design and execute lucrative yet, easily manageable, credit card programs. At Verinite, we help financial institutions design and execute successful credit card initiatives. To know more about our products and solutions, get in touch.