Should You Use a Credit Card EMI Option or Avoid It?

In today’s world of instant gratification, it’s tempting to splurge on big-ticket items using your credit card. But before you swipe, it’s crucial to understand when to use EMI and the implications of opting for a credit card EMI. While this payment method can be convenient, it’s not always the best choice for your financial health. Let’s explore when a credit card EMI option makes sense and when to steer clear of it.

Understanding Credit Card EMIs

A credit card EMI (Equated Monthly Installment) option allows you to convert a large purchase into smaller, more manageable monthly payments. Instead of paying the full amount upfront, you can spread the cost over a fixed tenure, typically ranging from 3 to 24 months.

Here’s a simple example to illustrate how credit card EMIs work:

In this scenario, instead of paying ₹50,000 at once, you would pay ₹4,583 monthly for 12 months. While this might seem attractive, it’s essential to factor in the interest charges and processing fees that come with EMI conversions.

When to Use a Credit Card EMI Option

1. Unavoidable Large Expenses: If you’re faced with a necessary purchase that exceeds your immediate cash flow, such as a medical emergency or urgent home repair, a credit card EMI can be a lifesaver. It allows you to manage the expenses without depleting your savings or disrupting your monthly budget.
2. No-Cost or Low-Cost EMI Offers: During festive seasons or special promotions, some retailers and banks offer no-cost or low-cost EMI options. If you come across such a deal on a planned purchase, it can be a smart way to save on interest charges. However, always read the fine print carefully to avoid hidden costs.
3. Maintaining Liquidity: If you prefer to keep a portion of your savings liquid for unexpected expenses or investment opportunities, a credit card EMI can help you finance a big-ticket item without tying up all your cash at once.

When to Avoid Credit Card EMIs

1. High-Interest Rates: Credit card interest rates are generally higher than personal loans or other financing options. If you opt for an EMI with a high interest rate and a long tenure, you might end up paying significantly more than the product’s original price. Always use an EMI calculator to determine the total cost before committing to a plan.
2. Impulse Purchases: It’s easy to get carried away by the allure of instant gratification, but using credit card EMIs for impulse buys can quickly lead to a debt trap. Ask yourself if the purchase is necessary and if you can afford the monthly payments comfortably.
3. Overextending Your Credit: Every EMI conversion blocks a portion of your credit limit until the full amount is repaid. If you have multiple EMIs running simultaneously, it can leave you with little available credit for emergencies or regular expenses.
4. Impacting Your Credit Score: While timely EMI payments can boost your credit score, missing even a single payment can have severe consequences. Delayed or defaulted payments can significantly lower your credit score, making it harder to secure loans in the future.

Making an Informed Decision

Before going for a credit card EMI option, consider alternative financing options like personal loans, which often have lower interest rates and more flexible repayment terms. You can easily check your personal loan eligibility and apply online through the Airtel Thanks app.

If you do decide to go ahead with a credit card EMI option, follow these tips to make the most of it:

• Choose the shortest tenure possible to minimise interest charges
• Avoid adding new expenses to your credit card until the EMI is fully repaid
• Set up automatic payments or reminders to ensure you never miss a due date
• Regularly track your EMI status and outstanding balance through online banking or credit card statements

Remember, while credit card EMIs can be a convenient financing tool, they should be used judiciously and only when necessary. By understanding the pros and cons of this payment method and making informed decisions, you can maintain a healthy credit profile and achieve your financial goals without undue stress.

Wrapping Up

In a nutshell, the credit card EMI option can be a smart way to manage large purchases when used judiciously. They work best for necessary, planned buys you can comfortably repay over time. At the same time, it’s important to avoid credit card EMI for unwanted purchases that appear affordable. Stick to your budget, read the fine print, and compare offers to ensure you get the best deal.

If you need assistance choosing the right credit card or EMI plan, feel free to reach out to Airtel Finance. Our experts are happy to help you make informed decisions that support your financial wellness. Here’s to savvy spending!

FAQs

1. What happens if I miss an EMI credit card payment?

Missing a credit card EMI payment can result in late payment fees, higher interest charges, and a negative impact on your credit score. It’s crucial to make timely payments to avoid these consequences.

2. Can I prepay my credit card EMI before the tenure ends?

Yes, most banks allow you to prepay your credit card EMI before the tenure ends. However, some may charge a prepayment penalty, so it’s best to check with your card issuer beforehand.

3. Is it better to opt for a personal loan or a credit card EMI?

Personal loans generally have lower interest rates compared to credit card EMIs. They also offer longer repayment tenures and do not block your credit limit. However, credit card EMIs can be more convenient for smaller purchases or short-term financing needs.

4. How can I find the best credit card EMI offers?

Keep an eye out for festive season sales or special promotions where retailers and banks offer no-cost or low-cost EMI options. You can also compare different credit card EMI offers online to find the best deal for your needs.

5. Will using a credit card EMI affect my credit utilisation ratio?

Yes, opting for a credit card EMI will increase your credit utilisation ratio, as the EMI amount is considered part of your outstanding credit balance. It’s essential to keep your overall credit utilisation below 30% to maintain a healthy credit score.