Tresa received a whopping bonus from her organization two months ago. She was ecstatic and bought gifts for everyone in the family as well as gave her living room a makeover. She purchased a 50-inch high-definition LED TV and a swanky sofa set. Oops! The bills too went a bit overboard and now she has a sizable credit card due. There is no possible way to pay the entire amount before the last day.
Now what is she to do? What will you do if you were in her place?
Most credit card companies offer the option of partial payment. But you will be paying a good amount as interest alone until the entire bill is settled. This is quite a pricey option. In fact some banks and credit card providers impose a rate as high as 36 percent on outstanding credit card amount.
You can go for a personal loan or a secured loan (like loan against your FD or gold) to pay back the amount owed. In this scenario, the rates are lesser compared to credit card dues. Lenders levy 13 to 22 percent interest on personal loans and between 10.5 to 12.5 percent on loans against FDs. But you need to go through the entire loan application procedure that include applying, paperwork, waiting for approval until it is finally given to you.
Conversion of your credit card outstanding dues to EMIs is a stress-free and more suitable option if you are worried about not meeting the payment deadline. This method is not very old and is already quite popular among credit card users. You can settle the amount in a period of three months to one year. Here, the rates are usually half of the interest on remaining credit card dues. So if you are levied 30 percent interest rate, you need to pay only 15 percent. Credit Card dues to EMI conversion does not require any formal application or long paperwork. You simply have to get in touch with your bank or credit card firm via email or in person and request for the option.
Nowadays, many financial institutions and card companies provide customers with this option. Indeed, if your bank has an affiliation with the shop or e-commerce website you shopped from, you may directly go for the EMI while shopping. As per the survey undertaken by First Data, the amount spent using credit cards using EMI have escalated by ten times in one year. This conclusion was formed on the basis of statistics on credit card spends between 3rd and 23rd October 2015 and between 3rd and 14th October 2014. But you can avail this option only for online payments. The Reserve Bank of India fortified the disclosure norms around EMI expenses the previous year. Hence the shops, websites, stores and lenders are supposed to inform the EMI-paying customers of the real interest rates (including hidden charges).
You must always remember that the credit limit on your credit card will go down to the extent of the EMI and you can use only the limit left over. Also, the EMIs have to be paid in time as late payments can attract quite high rates. This is why most people recommend this option only for high end purchases like consumer durables, electronic items, fixtures, furniture, iPhone, tablets, laptops, vacation packages and so on. Another disadvantage is that if you are shopping on EMI, you might not get the rebate that is given to those willing to make the complete payment. Remember to enquire this at the store (online or offline) before taking this step. So let us safely assume that converting the dues to EMIs is certainly the best option for Tresa.
If you choose to pay your credit card dues by EMI, the processing fee will be a percentage of the amount that is being converted into an EMI. This will be a nominal amount per Rs.1000 of the total amount that will be converted into an EMI. However, if you are being given a zero interest EMI offer, there is an exception to this as there most likely won’t be any processing fees in that scenario.
There could be many reasons why your EMI on credit card did not go through. One is if you are not eligible for such an offer or if your bank does not offer EMI on credit card dues. The other reason is if you do not have enough credit limit. To be eligible for EMI on credit, your credit limit should be enough to cover the total amount that you want to convert into an EMI. If your credit limit is less than this amount, then it cannot be converted into an EMI and your request will be declined. Another reason is if you have chosen a merchant EMI option at a store or an e-commerce portal. The merchant could decline the EMI option on the card if you do not meet the criteria such as their credit score cut-offs or if the merchant does not have a tie-up with your bank that issues the credit card.
Yes, you can choose the EMI option when making purchases in a store as well as online if the merchant has a tie-up with the bank that issued your credit card. Some card issuers may run a check on your credit profile before approving the EMI option on purchases. The interest rates and processing fees for EMI conversion, in such cases, is adjusted against the prices fixed by the merchant.
The maximum tenure for EMIs on credit card dues will vary according to the merchant and card issuer. EMI repayment tenures are typically longer when offered by the card issuer, going up to even 5 years in some cases, whereas for EMIs fixed by the merchant, the tenure will only be a maximum of 2 years.
No, your credit score is not negatively impacted if you choose to convert your outstanding dues into an EMI option, where possible. It only helps to ensure that your credit card dues are paid off on time every month and in a more manageable way. This helps to improve or maintain your credit score in the long run.
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