Credit Card EMI – How Does It Work?

Credit Card EMI

Credit cards not just provide credit to you as a user but even offer you the freedom to make loan repayments in instalments according to your comfort. Lately, credit cards have come across to be a highly useful financial product for you. Whether you are looking to make massive payments or want to make payments during emergencies, credit cards come as a rescue to you.

For example, if you purchase a product or good, which costs over your monthly income through your Yes Bank credit card or any other issuer’s credit card, you do not need to fret about repaying the credit card due in the upcoming next month. You can simply break the repayment into instalments and repay it according to your budget. Likewise, if you purchase furniture equalingRs 1 lakh through a credit card while your salary is Rs 60,000 monthly, you do not require worrying much about repaying the whole amount in the upcoming month. You simply can divide the repayments into EMIs and make the repayment of the borrowed amount according to your convenience. Alternatively, you even can also go for five instalments, each equalingRs 20,000 in such a case. It would make your life financially easier as opting for this route would not just allow you to prevent financial burden but also help you purchase something over your budget. 

Here are certain points you must know better. Being aware of them will help you to understand well how credit card EMI functions – 

       EMI will be computed based on different parameters like interest rate charged by a bank, time period selected for making amount repayment, down payment proceeds, etc. 

       Monthly EMI is levied to you along with your monthly credit card bill statement. 

To know about the amount of your EMI that you must bear every month, you must use the online credit card calculator. 

How can you convert your credit card repayments into EMI?

You get the choice to choose the credit card bill into comfortable EMI right at the purchase time. If you have a specific amount with yourself when purchasing the product, you can select to make the amount down payment while the rest of the amount can be converted into easy EMIs. It is necessary to remember that the option to make the credit dues repayment into EMI is not entirely in your hands. The major determining parameter of whether or not to be eligible for a credit card due to conversion into EMIs entirely depends on the hands of the issuing bank. 

Credit card dues are looked upon as a loan from banks. Bank provides you with credit card dues according to your requirement, and you get good flexibility to make the repayment of the same in parts. So, before providing you with the amount, it is crucial for the issuers to ensure you will repay the borrowed amount by its due date and will not take any undue benefit from it. To ensure this, banks review your credit repayment history, your credit score, your present loans, etc., before considering you eligible for credit card payment conversion into EMIs. 

Parameters to remember when you convert your credit card dues into EMIs

Below mentioned are a few of the crucial parameters that you must factor in before you convert your credit card dues into EMIs – 

Rate of interest – It must be noted that financial institutions levy interest on credit card dues that are converted into loan EMIs. Credit card rate of interest, however, differs from one issuer to another. It depends on different parameters like down payment amount, loan tenure, etc. Shorter the repayment tenure, the lesser the interest rate and vice versa. Thus, it is better for you to repay the loan and proceed at the earliest. 

Reducing balance method – Basically, banks levy credit card interest rates on the EMI proceeds using the reducing balance method. It means that interest will be levied on the rest of the loan balance towards the end of each month. So, for example, if you hold a loan equalingRs 50,000 and you paid Rs 10,000 in the first month, interest for the upcoming month would be levied on the rest of the amount, i.e., Rs 40,000. In such a way, the interest constituent that you require paying lowers each month.

Loan tenure – You can select a repayment tenure of anywhere ranging between six months and two years. However, it is necessary to remember that the shorter the tenure, the lesser will be the interest constituent to be paid. 

Processing charges – Few banks levy a minimal processing charge upon converting the credit card amount into loan EMIs, while the rest do not levy any fee. Generally, it is in the course of the festive season when the banks waive off the processing charges, so you must make your buys during this period. 

Cancellation and foreclosure – In the case you manage to gather the pending loan proceeds, you can repay before the loan tenure ends. It means cancellation or foreclosure of your loan. However, in these cases, different banks might charge minimal prepayment or foreclosure fees while the rest might not. 

Crucial points to consider when converting your credit card due payment into EMI –

       Not every credit card issuer provides the facility of converting your card dues into EMI. And for those who provide, not each one of you will be eligible for converting your card dues into EMIs. 

       Making the EMI buys on credit cards lowers your card limits. 

       If possible, ensure to make your loan prepayment as this would assist you in getting rid of the high-interest constituent that you might be born otherwise. Also, it is necessary to remember that you may not always incur foreclosure charges, so it is better to go for the prepayment route. 

       Try using an online credit card EMI calculator to figure out the EMI proceeds you can afford to make payment. Also, this will assist you in making a proper estimate of the amount that you can use through your credit card. 

About the Author: mickyaron

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