Whenever you go out for buying consumer electronics, apparel or personal and home accessories of high value, you do not have to think too much thanks to the flexible payment options available. By saying flexible, the attention is on easy finance at the showroom itself and EMIs (Equated Monthly Instalments) through credit cards.
The good thing about easy finance options is that they are available at very low interest rates and processing fees. In some cases, the finance might even be offered at 0% interest. However, the flip side to this convenient option is that you have to pay a substantial amount as down payment with the rest being converted to EMIs.
For Example – You buy furniture worth Rs. 48,000/- in April 2014 and opt for easy finance on it to complete payment by the end of the year. Here, you are likely to pay around Rs. 16,000 – 20,000/- (estimated) while the rest is converted to EMIs. Note that this payment structure is based on the number of available months for EMIs as per the loan tenure selected.
The second option i.e. EMIs through credit card allows you to get the complete purchase amount converted to EMIs subject to processing fee and interest fee charged by your bank. On the face of it, this option looks much more viable and convenient but there are a certain things that you must be clear on before you opt for credit card EMI schemes:
Not all credit cards have EMI conversion schemes.
This might come as a bit of a surprise if you hold a credit card with high credit limit but it is true. While some cards may offer this facility right from the date of card issue, others may not have it at all. In other cases, banks may wait for a certain number of bills, generally 3-5, to be generated and paid before activating EMI facility on the card.
Therefore, it is always wiser to check with your bank about this before making a big value purchase through your credit card.
You can opt for EMIs on credit card only above a certain amount spent.
For most banks, this amount is between Rs. 3,000-5,000/-. So if you want to opt for EMIs on a purchase value that is below the prescribed purchase value, then your request will not get processed.
Credit card EMI options on ecommerce websites.
When purchasing online, if your credit card is not present in the list of credit cards for EMI schemes, then you can opt for it by applying online through your bank’s website or by speaking with the customer care. This availability on online portals is dependent on whether your bank has a tie-up with the portal or not.
In other words, as in the case of point of sale transactions, you can ask your bank to convert an online purchase through credit card to EMIs. As an extension to the first fact, your credit card should have the EMI facility for your request to be processed.
Your credit card limit is reduced.
This particular fact is most likely to escape you if you are availing EMI through credit card for the first time. Based on the EMI tenure you opt for, your credit card’s limit gets reduced by the amount of purchase value. For instance, if the credit limit on your card is Rs. 45,000/- and you purchase a Smartphone worth Rs. 20,000/- and then get it converted to EMIs, then your available credit limit comes down to Rs. 25,000/-.
This should be a factor of critical consideration if you use your credit card for your daily life expenses.
Interest rates vary from bank to bank.
Here is another factor that you should be aware of before going for EMI conversion on your credit cards.
For example, Mr. X purchases a couple of 2-Ton split air conditioners from a multi-brand showroom worth Rs. 80,000/-. He opts for a 6-month EMI where his bank charges a flat interest rate of 15% and a standard one time processing fee worth Rs. 750/- for the purchase.
Purchase amount = Rs. 80,000/-
Interest rate = 15%
So, the total amount for EMI = 80000 + 15% x 80000 = 80000 + 12000 = Rs. 92000/-
So, EMI for 6 months = 92000/6 = 15,333.33/-
In this particular instance, going for EMI will turn out to be an expensive affair for him. However, if your bank offers a more attractive interest rate then going for EMIs would be beneficial.