Did your bank offer you to convert your credit card transaction into EMI to reduce your financial burden?
Before converting your credit card transaction into EMI, you should know these crucial things.
Estimated read time: 2 minutes and 59 seconds
Buckle up, here we go!
Let’s say you have been using your credit card sensibly until now. You have earned good reward points and have maintained a good credit score.
But suddenly, you have a financial emergency. You realise you made a big ticket purchase with your credit card recently. And now you are about to default on it.
You know that once you default, your credit score is going down, plus you will have to pay a lot of interest, as bank charge up to 42% on pending credit card bills.
And right then, you receive a message from your bank saying that you can convert some of your credit card transactions into EMIs.
Should you take this offer from your bank? Is it the right choice for you to make in that situation?
If you are in the exact situation mentioned above, then this is the right choice. Because instead of defaulting completely on your credit card bills it is good to reduce the burden to some extent and try to pay off the dues slowly.
Yes, you will have to pay interest, processing fee and GST on the converted EMI because it is a loan. But the interest charged on these loans is around 12 to 24%, which is significantly better than the 42% charged on credit card dues.
How does converting credit card transactions into EMI work?
It’s not that you have to wait for your bank to provide you with this facility. This facility is already available to most credit card holders.
Log in to your bank app or website, then click on the unbilled transaction list under the credit card section. You can single or multiple transactions you want to convert into EMI there. Check this video of the ICICI mobile app. (They should have used darker background music)
Once you click on convert EMI, your bank might show the EMI amount, interest rate, processing fee, etc. as shown in the below screenshot.
As you can see, they will charge you a processing fee of 2% and an interest rate of 18%. These charges will differ for each bank. You can select the tenure you want and convert your credit card transaction into EMI just like that.
But should you normally do this? No. To understand this, let us compare the benefits and drawbacks of this move.
Benefits of EMI conversion of credit card transaction
1. Easier repayment
Converting your credit transactions into an EMI allows you to repay them slowly over a few months. This reduces your financial stress to some extent when you are in a financial crisis.
2. Lower interest rates
Compared to the general interest rate charges on a credit card due, the interest rates charged on EMI are lower.
Drawbacks of EMI conversion of credit card transaction
1. Additional fees
You have to pay processing fees, interest charges and GST on them. Also, if you want to close the loan earlier, you have to pay a foreclosure fee.
2. Credit limit
When you convert a credit card transaction into EMI, your credit card limit is reduced by the same amount. It will slowly increase as you pay your EMIs.
3. Credit score
Because your credit card limit is reduced, your credit score is hit. Also, because of the reduced limit, your credit utilisation ratio will go up. This will further affect your credit score.
4. Reward points
You will lose the reward points you earn from the transaction, which you converted into EMI.
Should you use this EMI facility?
As you can see, the drawbacks are higher than the benefits because this is an expensive conversion. As your buddy, I would never want you to use this facility in normal situations.
Converting credit card transactions into EMI should be your last resort. Because anyway you are going to pay high interest and other charges.
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