New Delhi. Nowadays, the easiest way to buy a big mobile, fridge, TV or laptop is through credit card EMI. The customer feels that the payment will be made gradually in installments without putting pressure on his pocket. But is EMI really always beneficial? Is its real cost as low as the shopkeepers or banks say? Let us understand in simple language what is important to know before taking credit card EMI?
Real truth of EMI: Not just installments, many types of charges also apply
Whenever you convert any product into EMI, the bank not only charges you interest but also charges many hidden charges. First comes the processing fee. It can range from Rs 199 to Rs 1,000. Sometimes banks also add GST, which further increases the cost. The second big charge is foreclosure or pre-closure fee. If you want to stop the EMI midway, the bank imposes a penalty. Many customers remain unaware of this.
No Cost EMI is not actually zero
The phrase often used in the market is No Cost EMI i.e. EMI without interest. But the truth is that even in no cost EMI, interest is hidden somewhere. The discount that the shopkeeper gives on the product is not given on taking EMI. The bank adds interest in the form of foreman charges, processing fees etc. This means that even in no cost EMI, the buyer pays the interest directly or indirectly.
How does EMI increase the total expenses?
Suppose you bought a phone worth Rs 60,000 on EMI of 12 months. The bank charged 14% interest. EMI will be around Rs 5,400.
Your total payment at the end of the year will be-
EMI total amount: Approximately Rs 64,800
Processing fee: Rs 500–1,000
GST: Around Rs 90–180
That means the total expenditure will reach approximately Rs 65,500 to Rs 66,000. In simple language, you paid about Rs 6,000 more on the phone.
Cashback EMI vs Regular EMI: What’s the difference?
Some banks offer cashback EMI, in which the interest part is returned later in the form of cashback. This scheme can be beneficial, but only for those customers who-
- Keep the card active till you get cashback
- no default
- pay bills on time
- Cashback gets canceled even if there is a small delay.
When should EMI option be taken?
- A sudden expense may arise and you may find it difficult to pay the lump sum.
- Want to buy a big product on offer with 0 or less interest.
- You must have a regular income and are confident of paying the EMIs on time.
- You want to organize your budget.
When should one not take EMI?
- If you are already paying multiple EMIs.
- There is difficulty in paying the credit card bill on time.
- Your purchase is based only on desire, not need.
- The interest rate ranges between 14–24%, which is higher than a personal loan.
impact on credit score
By taking EMI your credit card limit gets blocked. If your limit remains too low, your credit utilization ratio increases, which can have a negative impact on your credit score.
How to choose the best EMI?
- Compare offers from all banks.
- Be sure to ask for processing fees.
- Cross-check hidden charges in Zero EMI.
- If you want to close the loan early, then know the pre-closure charges.
- Choose EMI with shorter tenure of 3 or 6 months as the interest is less.
EMI facility is available, but wisdom is necessary
Credit card EMI makes your purchases easier, but taking EMI without thinking increases the total expense. Therefore, before choosing EMI, definitely understand the interest rate, processing fee and total cost. With the right information, EMI gives benefits and also manages your budget.
