By, Mr. Mayank Markanday, Head of Credit Cards, AU Small Finance Bank
We all aspire in life. Be it going on a dream vacation, taking an online course, buying the best DSLR camera, or the latest iPhone or getting a modern refrigerator or oven for our moms. In such cases, credit cards can be extremely beneficial, provided they are used wisely and judiciously. These cards offer greater convenience while making payments easy and eliminate the need of carrying liquid cash. Also, by converting your credit card transactions into easy equated monthly instalments (EMIs) you can make a high-priced purchase without burning a hole in your pocket. Being able to purchase big-ticket products on EMI is probably one of the leading factors that attract people towards credit cards.
When to convert purchases into EMI
EMI on a credit card can be useful and convenient, however, there are circumstances in which it is advisable to use this facility. EMIs are useful when you want to buy something that your bank balance doesn’t support. Also, when you end up spending more on your credit card, EMIs can save you from the high-interest rates. In this case, getting the EMI option can reduce your interest rate by half. Moreover, these options are available at the click of a button or through a call itself, there is no need for any extra documentation or process to follow. Sometimes even your Credit Card statement can help you find this option.
Things to keep in mind when you opt for the EMI option on credit cards
Processing fee: EMI schemes are subject to a nominal processing fee. Please check before opting. Moreover, many banks also provide zero EMI offers that you can take advantage of.
Available credit: You should ensure that you have enough credit on your card so that your EMI request is not rejected. The credit amount should be more than or equal to the amount you want to convert into EMIs.
The provisional decline of your credit limit: As soon as your EMI scheme begins, your bank will temporarily block an amount equal to the value of the purchase you have made through the EMI option. However, as you start paying back your EMIs, your bank will again start increasing your credit limit by the amount equal to your monthly EMI.
Know what can be converted and what not: Different banks have different things or items that they permit to be paid via EMI that include the purchase of electronic devices, travel expenses, purchase of apparel, lifestyle-related expenses, insurance expenses, etc. However, most banks do not allow customers to make EMI payments for the purchase of jewellery and precious metals like gold, silver etc.
Advantages of Converting Purchases to EMIs
Manageable Financing Option: By choosing the EMI payment facility, the customers can repay the debt over a period of time, helping them to manage their finances better.
Improves Credit Profile: With EMI payments, there are fewer chances of a borrower defaulting with the payments helping individuals improve their credit history gradually over the period of time.
Attractive Rates of Interest: EMI payments carry a certain rate of interest. However, the same is usually low for purchases that have been converted to EMIs. Some banks may also not levy any interest whatsoever on your purchase EMI.
Flexibility in Repayment Tenure: Customers are given the freedom to choose the tenure of repayment on their purchases. The usual tenure allowed for repayment may range from 3 months, 6 months, 9 months and 12 months.
Credit cards provide instant access to credit by financing your transactions. Credit card spending in India crossed the Rs 1-lakh-crore mark in October, hitting a new high. According to the Reserve Bank of India data, the value of credit card transactions rose 26% month-on-month to hit Rs 1,00,943 crore in October due to the festive season spending. However, it is important to note that though card issuers do not charge any interest on transactions repaid by the due date, high interest and late fee is applicable to those repaid after the due date. Hence, you should always pay credit card bills on time. However, if by any chance you are unable to repay, you may consider EMIs for transactions involving longer repayment periods.