Is it Sensible to Convert Your Credit Card Payments into EMIs?

Now, this may seem like a good option initially when you see it, especially if you are stuck in a cash crunch scenario wherein you really cannot afford to pay off the entire outstanding amount altogether in one go. However, in this world, there are very few things that might be offered for free, and sadly, the option for credit cards EMI does not make it to the list. 

It is vital for you, as a cardholder, to be aware of what the credit cards EMI option actually holds for you before you go ahead and blindly opt for this option. Here, in this thread, is a brief guide for you.

Credit Cards EMI: How Do They Actually Work?

Your credit cards EMI are actually pretty similar to the EMIs on any other loans – you pay off a portion of the principal amount due every month along with a fixed monthly interest rate, thereby clearing off your dues over the course of time.

The option to converting your credit card payments into EMI payments will either be available to you when you are making the purchase or at a later date in the future when your amount is overdue. Usually, the credit card provider will by themselves offer this option to you via either email or SMS when the transaction on your card exceeds a fixed amount.

On top of this, the credit card providers often partner up with some of the manufacturers or stores out there to offer the EMI option on some products, or in some cases, all of them. The banks offer the credit cards EMI option to cardholders on the basis of their credit activity behavior.

Things to Consider Before Converting Credit Card Payments to Credit Cards EMI

• Interest Rate: The credit card providers out there in the market charge a rate of interest when credit card payments are converted into credit cards EMI. This interest rate can vary from one provider to another. However, the rate of interest on the credit cards EMI can be substantially lower when compared to the rate of interest that is charged on the late payment of the outstanding balance on the credit cards.
• Processing Fee: The conversion of credit card payments to credit cards EMI may also carry along a processing fee along with some other potential charges. The processing fee charged on the conversion of payments to EMI can vary from provider to provider. However, some credit card providers might not charge any processing fee to its cardholders for converting their credit card outstanding dues to credit cards EMI.
• Reduced Credit Limit: Unlike the usual credit card dues’ repayment works, the conversion of credit card payments to credit cards EMI will cause a blocking of the entire outstanding amount against the actual credit limit on the card for a comparatively longer period of time. For instance, you have a credit limit of AED 25,000 and you have converted a payment that is worth AED 8,000 into 4 EMIs of AED 2,000 each. In such a scenario, the credit limit on your card will drop to AED 17,000 before the payment of the first credit cards EMI and it will progressively increase by an amount of AED 2,000 every month as each EMI is paid off.
• Prepayment Fee: Generally, the banks in the market tend to levy a penalty charge on the foreclosure of outstanding debt. This charge is a fixed percentage of the outstanding amount.
• Absence of Discounts: When you decide to buy a product using the credit cards EMI alternative, it may come at a cost. This is the cost of foregoing the usual discounts that are offered on that particular product for the transactions that are cash in nature. This acts as an additional cost when it comes to converting your credit card payments to credit cards EMI.

In a Nutshell

It can be a costly affair to convert your credit card payments into credit cards EMI, especially considering the overall cost of goods. You should aim at trying and paying off the due in one entire go. If, however, you are in a scenario where you cannot afford to do so, for instance, in case of deep pocket purchases, breaking down the due balance into credit cards EMI can be a convenient alternative to paying off those bills.

However, make sure you take into consideration all of the charges that are associated with the credit cards EMI, such as the rate of interest, processing fee, along with any prepayment charges. Also, keep in mind to always pay your EMI payments on time to avoid any sort of late payment charges or any other interest charges that may be associated.