Credit cards have revolutionized how we make purchases, providing flexibility and convenience. One of their most popular features is the option to convert high-value purchases into Equated Monthly Installments (EMI). But is opting for credit card EMI always a smart choice? Let’s explore the basics, the options available, and when it makes sense to use EMI.
What Is EMI on Credit Cards?
Credit card EMI allows you to break down large purchases into smaller monthly payments over a predefined tenure. Instead of paying the entire bill upfront, you can choose a repayment plan spanning 3 to 24 months or more. However, EMIs come with associated costs, including interest, GST on interest, and sometimes a processing fee.
How to avail EMI on Credit Cards?
At Point of Purchase
Example: While buying an iPhone 16 Pro on Amazon
You’ll see EMI options directly during checkout.
Many banks offer no-cost EMI or low-cost EMI plans.This option is quick and doesn’t require post-purchase action.
Post-Purchase via Credit Card App
After making a transaction, you can convert it into EMI using your credit card app or net banking.
The process is seamless but may not include no-cost EMI options and can attract standard interest rates and processing fees.
Example of Credit Card EMI options at point of sale (like Amazon app)
Example of Credit Card EMI options available post transaction
How Does EMI Work on Credit Cards?
- Conversion Process:
- At point of purchase, you can select EMI during checkout on partner platforms.
- For post-purchase, convert eligible transactions into EMI through your bank’s app or net banking.
- Processing Fee:
- A one-time processing fee (typically 1-2% of the transaction amount) may be charged upfront.
- Subsequent Installments:
- Monthly installments are charged to your card as part of your billing cycle.
- Credit Limit Blocking:
- The full transaction amount is initially blocked from your credit limit.
- As you repay EMIs, the equivalent amount is freed up, restoring your available credit line.
- Flexible Tenures:
- You can typically choose tenures ranging from 3 to 24 months, based on your financial needs. Longer tenures reduce monthly payments but increase overall interest costs.
Example of tenures available for EMI conversion post transaction in the credit card app
Impact on Credit Limit
When you purchase on EMI:
- The full transaction amount (e.g., ₹60,000) is blocked from your credit limit initially.
- Each EMI payment reduces your outstanding balance, gradually restoring your available credit limit.
- For large purchases, this blocking can temporarily reduce your spending power.
The REAL cost of EMIs on Credit Cards
The true cost of credit card EMI is often misunderstood, with hidden charges significantly increasing the effective interest rate. When you opt for an EMI, you’re not just paying the base interest rate, but also incurring additional costs through GST, which is uniquely applied to credit card interest.
For example, a 20% per annum interest rate effectively becomes 23.6% when the 18% GST is added, meaning the government receives 3.6% of the interest amount.
Contrary to popular belief, even “no-cost EMI” options aren’t truly free – while merchants may offer a discount equivalent to the base interest, they do not cover the GST component, which remains your responsibility. This means you’ll always pay an extra amount through GST, regardless of whether it’s a standard EMI or a no-cost EMI, making the actual cost higher than the advertised rate. Processing fees can further inflate the total expense, making it crucial for consumers to calculate the net effective cost beyond the seemingly attractive headline interest rate.
| Particulars | What Borrower Pays (Rs) |
| Product Price | 24,000 |
| Merchant discount | 2,410 |
| Net price | 24,590 |
| Tenure | 12 months |
| Offered interest rate | 20% |
| Total principal repayment | 21,590 |
| Total interest payment | 2,410 |
| Applicable GST rate | 18% |
| Total tax on interest | 434 |
| Total cost of finance for consumer (net of merchant discount) | 434 (rest borne by merchant) |
| Net cost of borrowing for consumer | 3.6% |
Credit Card EMI vs. Personal Loans
| Feature | Credit Card EMI | Personal Loan |
|---|---|---|
| Interest Rate | 12-18% | 10-15% (if good credit score) |
| Documentation | None | Requires income proof, etc. |
| Approval Process | Instant (1 click) | May take a few hours/days |
| Eligibility | Linked to credit limit | Depends on credit score |
While personal loans may have slightly lower interest rates, credit card EMIs offer unmatched convenience and speed.
Comparison with BNPL (Buy Now Pay Later)
| Aspect | Credit Card EMI | BNPL |
|---|---|---|
| Cost | Lower interest rates, GST | Higher interest rates |
| Flexibility | Fixed tenure | Variable tenure |
| Eligibility | Linked to card limit | Often limited to smaller amounts |
BNPL is ideal for small-ticket items, but for high-value purchases, credit card EMI is generally more cost-effective.
Why EMI Beats Revolving Credit
Failing to pay your credit card bill in full incurs a revolving interest rate of 30-40% annually, significantly higher than EMI rates.
Example:
- Outstanding Amount: ₹60,000
- Revolving Interest: ~3% monthly (₹1,800)
- In 12 months, you’d pay ~₹71,600, excluding GST.
Converting this to an EMI at 12% annual interest could reduce costs to ~₹62,500, saving you nearly ₹9,000.
When Should You Opt for EMI?
Opt for EMI When:
- It’s a no-cost EMI, and you don’t lose out on additional upfront discounts.
- You can manage the monthly payments comfortably without disrupting your cash flow.
- A large purchase would otherwise lead to high interest due to revolving credit.
Avoid EMI If:
- The processing fee and GST make the total cost unreasonably high.
- The tenure is too long, increasing interest outflows.
- You can afford to pay upfront without compromising liquidity.
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