Whenever you make a significant payment using your credit card, your bank sends a message whether you want to make this payment through EMI (Equated Monthly Instalment). But, have you wondered how beneficial this option can be for you?
While most of the people in India have started using credit cards, most of them are still unaware of the risks involved with the reckless use of credit cards. If you are spending beyond your repaying capacity and you are also not making payments on time, majority of the credit cards will charge higher interest rates that usually ranges from 36%-45%. So, are you wondering how to deal with this? One of the best ways is to choose EMI having low-interest rate. Let us get to know how this should be done. Calculate monthly EMI to repay your credit card loan using our EMI calculators and get your loan repayment schedule considering the interest rate
Make sure you have found that your credit card does have the provision of EMI. Some of the leading banks do offer this facility. In order to use the EMI facility, most of the banks provide an outstanding amount of 5 lakh and the maximum interest rate charged is 22%.
Whether to choose EMI or not
- One time processing fee gets added to your cost.
- You should only use it when you are about to default on a payment.
- Throughout the EMI period, make sure you have kept an eye on the credit limit, which may extend up to two years.
- Make sure you have not used EMI as one of the mediums of overspending.
Therefore, it is important you have checked with your bank whether it offers this facility or not.
In the event, your bank does not offer the option of repaying credit card EMI, you can opt for a personal loan or you can also choose to transfer your balance to another credit card to make timely payments for your pending amount. If you fail to do so, you will have to face higher interest rates on your credit card. If you fail to make the repayment on time, your credit score may plunge down.
On the other hand, if your bank does offer the facility of repaying using EMI method, there are still some things you need to be aware of –
The processing fee is one of the key things you need to know that the banks commonly charge for using EMI option. The processing fee is taken in advance and it goes to add to the cost that needs to be paid by you. This fee is usually expressed as a percentage of the loan you have plans to avail using the EMI option.
Generally, the amount stays below 5,000. The amount can also be negotiated and if you are an old customer of the bank, there is a fair bit of chance that the bank may opt to waive it off. In some cases, the bank may opt to waive off the processing fee and may ask you to make the remaining payment in advance.
Credit limit is reduced
While you keep repaying via EMI, the credit limit keeps on reducing. It can be said that EMI option blocks your spending in the ensuing months. Things can really get serious if you are mainly dependent on the credit card either to meet your daily expenses or to make some future payments.
There are probabilities that a bank may offer you EMI for a maximum of two years. This will mean that for at least two years, you will have to bear the lowered credit limit. Usually, the banks don’t prefer to raise the credit card’s credit limit if the pending amount is paid via EMI. You have to ensure that you don’t surpass the credit limit while you are using your credit card all through the term of your EMI.
As a cardholder, you will surely come across some banks offering the option of insurance. When you make an extra charge against the premium, various insurance companies choose to pay the pending principal in case of contingency. The premium gets added to the pending amount and you are also being notified about it.
It is the EMI that handles both the premium required to insure you and the outstanding that needs to be paid. This way you are able to make the outstanding payment to the bank. It is beneficial to all three parties – the bank, you, and the insurance company. In addition, an EMI option will also save your credit score from plunging down.
While paying your credit card bills via EMI option, one question arises i.e. is it a beneficial way of repaying your credit card bills? The answer is in negative; you should go ahead and do the spending whenever you need to. Having said that, it is important you stay within your limits defined by your monthly income.
It has been seen that during the festive season, people tend to do impulsive shopping and it often lead to the high use of EMI facility. You need to have a list of the things you need within your price limits, this will help you to deal with such situation. EMI facility should not be taken as a medium through which you can spend lavishly.
You must assume EMI facility to be used only when you are on the edge of defaulting a payment. While it does come handy in saving your credit score from dropping down, it can also become a burden on your finances for an extended duration. Also, various EMI arrangements can also make your credit score to reduce considerably.