Equated monthly Installments (EMIs) have become a popular way for people to make purchases nowadays. From the realisation of owning a flagship smartphone to purchasing property, EMIs bring people the joy of fulfillment. However, EMIs on credit and debit cards may sometimes be considered a debt trap.
These EMIs are often viewed negatively due to their high interest rates. On the bright side, with proper planning and discipline, they can become helpful financial tools. This is because these EMIs allow you to convert high-value transactions on your card into more manageable monthly payments.
Understanding Credit Card EMIs
Credit card EMIs can be beneficial in the short term if you are temporarily tight on finances. For example, if you have recently purchased an expensive electronic appliance and are not able to immediately pay off the debt on your card in full. In such instances, converting this transaction into an EMI may be helpful. If you are worried about the ambiguity of the final amount you would end up paying, you can always use an online EMI calculator.
However, there is another type of EMI that you can avail yourself of on your credit card. These are no-cost EMIs which do not charge you any interest. No-cost EMIs have become one of the most popular modes of paying for high-value goods these days. Counterpoint Research found that no-cost EMIs made up 33% of all smartphone purchases in 2023. This shows that credit card EMIs are not always a trap but can also be a smart payment option.
Advantages of Credit Card EMIs
- Financial Flexibility
By availing yourself of EMIs on your credit card, you may be able to own expensive necessities, such as air conditioners and refrigerators, even when you are in a financial crunch. These EMIs offer you the flexibility to break up one expensive payment into several monthly instalments. This could even give you more financial freedom.
- Budget Management
Another benefit of converting high-value transactions into EMIs is that you can take control of your budget. By using an online EMI calculator, you can calculate your monthly EMIs and plan your finances accordingly. These EMIs also save you from the sudden burden of having to pay off heavy debt on your card just the next month.
- No-Cost EMI Offers
One of the most significant advantages of these EMIs is that some may be no cost. This means you will not be charged any interest on your monthly instalments. However, some institutions may charge a substantial one-time processing fee. However, even so, the ability to break up an expensive purchase into monthly payments without incurring any interest is quite attractive.
- Minimal Documentation
Unlike a personal loan, debt on your credit card does not require any documentation. The bank or non-banking financial institution that has issued your card already has all your particulars, making it easy for them to provide you with EMI options for large purchases on their card.
Potential Downsides of Credit Card EMIs
Despite the several benefits of such EMIs, there are certain downsides that you need to be mindful of. For example, interest-based EMIs may sometimes charge a higher interest rate than a personal loan. Some banks and non-banking financial institutions may have hidden charges that are not reflected in any EMI calculator. Moreover, if you miss any of these EMI payments, it could adversely impact your credit score (CIBIL score). One of the biggest risks, however, is the accumulation of debt. If you do not practice prudent financial discipline, then credit card EMIs may indeed become a debt trap.
Making an Informed Decision
To sum it all up, credit card EMIs can offer you the chance to own expensive products without waiting until you have saved up for them. However, without an EMI calculator and financial discipline, these EMIs may accumulate, becoming a debt trap.
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