When 0% EMI schemes were introduced, there was a boom in the spending habits of consumers because more people could purchase things that they didn’t necessarily have money for upfront. Banks, manufacturers and merchants made lots of money. It was a time of great abundance. Then RBI banned 0% EMI schemes even though consumers were still hooked on the idea of flexible payment options and convenient credit.
Once this was banned, banks started to tie up with establishments which offer high value services in order to increase the credit card business. EMI schemes with cash-back were thus on the rise, a replacement that young consumers found very convenient. EMI at Point of Sale (PoS) is a trend that does not look like we are going to see end anytime soon. It allows consumers to get high value goods or services without having the entire amount at the time of purchase. Even tuition fees can be paid like this using their credit card. Segments like insurance, hotels and education are adopting this method of payment.
This trend has brought back the spending trend seen during the days of 0% EMI schemes. This trend has also made banks more cautious about whom they offer credit cards to. Rigorous checks are done to make sure that the risk of default is reduced, particularly since more and more people are opting for EMI facility on purchases.
Does this seem like it is too good to be true? Here are some disadvantages of going for EMIs at PoS through credit card:
A number of banks do not offer an EMI facility for credit card purchases owing to the fact that opting for an EMI repayment expands the spending capacity of the customer, thereby, increasing the chances of a bad debt. Therefore, you should verify with your bank in advance whether your credit card has this option and what are the terms and conditions for the same.
Additionally, when you opt for EMI through credit card, it impacts the credit limit of your card. As you repay the debt using monthly installments, the credit limit gradually increases again. Availing the EMI repayment option for a credit card payment at the point of sale might be beneficial in a number of ways. However, if the debt is not cleared in time, it can cost you dearly in the long run due to the heavy penalty that is imposed.
This method may be convenient, but if you decide to pay your college fees this way instead of getting educational loan, you cannot take advantage of income tax deductions and moratorium period. Also, you can take a longer time to pay back an education loan as compared to a credit card repayment term. An education loan will give you some breathing space. You can take even up to a year, until you get a job, to pay back an education loan. This is not the case with ‘EMI on PoS’ which needs immediate payback.
You will be losing out on reward points on the credit card purchase if you opt for EMI on a purchase. In case you decide to foreclose the EMI facility, you will have to bear the pre-payment charges on the outstanding amount. What's more, you will attract other penalties if you close the credit card account during this period.
Sometimes you just cannot avoid defaulting on a payment (if you need extra money for hospitalization for example). If you do default on a payment, you could pay higher interest on your monthly minimum due on the credit card. If you happen not to pay the minimum due, monthly EMI amount included, you will incur not only late fees but also higher interest on the outstanding amount.
Finally, with an education loan you can get the loan approved upfront and you will be getting disbursement when the fees are due. This will prove to be an efficient and simple method of payment.
Advantages of Making EMI Payments at Point of Sale Through Credit Card
- Opting for EMI at point of sale while making a credit card payment increases the affordability of the borrowers. This facility offers individuals the ability to purchase an expensive item without having to pay a lump sum amount.
- Customers might be able to avail additional offers such as instant discounts, cashbacks, etc.
- Borrowers might be eligible for numerous offers from the retailers, manufacturers, and other discounts based on the location and type of the item.
- By being extremely punctual with each of the EMIs, borrowers can improve their credit profile gradually in the long run.
- If you are a loyal customer of your bank with an incredible credit history, you might be able to negotiate the processing fee and prepayment penalty charges when you apply for an EMI option for credit payments at the point of sale.