How does Credit Card EMI work? – A comprehensive guide

Credit card EMIs offer the option to convert purchases into manageable instalment payments, making it easier to manage your expenses. Rather than paying the full amount upfront for a transaction, you can split it into smaller monthly instalments. Factors such as the bank's interest rate, chosen repayment period, and any down payment influence how the Credit Card EMI works.

What is EMI on a Credit Card?

EMI on a Credit Card allows you to convert high-value purchases into smaller, more manageable monthly payments. It enables you to manage your expenses more efficiently and plan your finances effectively, providing flexibility and convenience by making expensive items more affordable and accessible to you.

Advantages of converting Credit Card purchases into EMIs

• Interest rate
  

  Credit Card EMIs charge lower interest rates than standard Credit Card interest rates. This can result in significant savings over the repayment period.

• Reducing balance method
  

  Most banks use the reducing balance method to calculate interest charges on EMIs. This means that interest is applied to the remaining loan balance at the end of each month.

• Repayment period
  

  You can choose a repayment tenure ranging from six months to two years while converting purchases into EMIs.

• Processing fee
  

  Certain banks charge a nominal processing fee for converting your Credit Card purchases into EMIs. However, you can check with your bank if they have a scheme to waive this fee off.

• Foreclosure and cancellation 
  

  Converting Credit Card purchases into EMIs offers the flexibility of foreclosure or cancellation. You can pay off the remaining EMI amount in advance, saving on interest costs.

How EMIs affect your Credit Card?

Opting for Credit Card EMIs reduces your available credit limit. However, it is essential to consider how does EMI work on Credit Card limits and credit utilisation. When you choose the EMI payment option, your spending limit decreases by the principal amount of the purchase. Not paying EMIs on time or defaulting can lower your credit score, and paying EMIs promptly boosts your credit score.

How to convert Credit Card payments into EMIs?

To convert your Credit Card payments into EMIs, you have the option to select this facility at the time of purchase. However, your card issuer will assess your credit score, repayment history, and existing loans before approving and converting your payments into EMIs.

Banks and financial institutions, such as Axis Bank, offer Credit Card EMI Calculators that can help you calculate your monthly instalment by converting Credit Card dues to EMIs.

Things to know while opting for an EMI on Credit Cards

Before opting for an EMI on your Credit Card, there are a few things you should know:

• Not every Credit Card has the facility for EMI
  

  Not all Credit Cards offer the option to convert purchases into EMIs. It is essential to verify whether your card provides this facility before making a purchase.

• EMI purchase reduces your card limit
  

  When you choose to convert a purchase into an EMI, your available credit limit will be reduced by the principal amount of the purchase.

• EMI processing fee is negotiable
  

  Banks often waive processing fees during festive seasons or promotional periods. Take advantage of these opportunities to save on processing fees.

• Opt for online purchase
  

  Opting for online purchases when using the EMI facility can have additional benefits.

• Settle your payments in full
  

  Make sure to pay your EMIs on time to avoid negative consequences such as late payment charges and a negative impact on your credit score.

• You can get a waiver on the prepayment penalty
  

  If you have the means, consider prepaying your loans. This helps save on interest payments and reduces the overall financial burden. Remember that foreclosure fees may or may not be applicable, depending on the bank or financial institution.

Also Read: Documents needed for Credit Card application in India

Wrapping up

Credit cards have become an essential financial tool, providing users with the freedom to make convenient purchases and repay them in instalments. This is how Credit Card EMI works! This flexibility has made Credit Cards highly popular among individuals who need to make large purchases or handle unforeseen expenses.

FAQs

Why should I convert Credit Card purchases into EMIs?

Converting Credit Card purchases into EMIs allows you to manage your finances better by splitting larger payments into smaller, more affordable instalments.

On what basis will my EMI on a Credit Card be calculated?

The EMI amount depends on factors such as the rate of interest charged by the bank, the chosen repayment period, and any down payment made.

Do all Credit Cards have an EMI facility?

No, not all Credit Cards offer the option to convert purchases into EMIs. You should check whether your specific card provides this facility.

What happens if I pay more than my EMI amount?

Paying more than your EMI amount can help reduce your outstanding loan balance faster. However, it is advisable to check with your bank regarding any terms or conditions associated with early repayment.

Will I be allowed to pay off my EMIs on my Credit Card in one go?

Yes, most banks allow you to prepay your EMIs and settle your outstanding loan amount before the agreed-upon tenure ends.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.