A credit card is normally a revolving account created by the bank granting a line of credit to the cardholder, from which the cardholder can borrow money for payment to a merchant or as a cash advance. The credit card has a credit limit and the cardholder can withdraw the amount exceeding the credit limit for his payments in case of a financial crisis. After a certain time, the list of all purchases, payments and other debts and credits made by the credit card account are sent to the cardholder by the credit card issuer in form of a billing statement. All the data regarding the bill is clearly stated in that billing statement and all the transactions are covered in this statement. The limit for the bill payment is also stated and so the cardholder needs to pay the bill within that specified period only. Well, this might create a certain burden on the users for payment of the bill.
The bank offers the services of paying the amount on installment basis but they charge high rate of interest on the due amount and so the interest on accumulated amount keeps on increasing. Hence, there is another alternative for easy payment of credit card bill with low interest rate i.e. EMI.
The EMI option is a modern and a more hassle free approach. It is more suitable when the credit card holder is worried about not meeting the payment deadline. The availability of EMI option is subjective to bank and not the customer as not all the banks provide EMI conversion to the customers and neither this service is available on all types of credit cards. So, the customers must ensure that this facility is available to them before going ahead with the procedure. Many top lenders and card issuers offer the EMI facility on their credit cards and if the customer is interested in a more comfortable manner of payments then credit card dues can be converted to equated monthly installments or EMI’s by the bank. Generally, the rate of interest ranges between 17-18% which is far less than the general rate of 36-40% that is charged by the bank. The interest rates on the credit card bill are generally half than that of the interest charged by the bank for installment payment of bill. The interest rates for converting the outstanding amount into an EMI may vary from low interest rate to no interest rate at all. The EMI should be paid in time as late payments can attract quite high rates gradually. Even the long documentation procedure is nil if the cardholders go for EMI.
The EMI allows the card users the freedom to pay the credit card bill at a more comfortable pace and the choice of installments ranges from three to twelve months. Nowadays, it is easier to convert their credit card dues to as banks convert the due amount into EMI after some verification at their end. There is no need of any security proofs or other documents.
Before turning the credit card dues into EMI, some impacts of the conversion should be kept in mind. Firstly, a one time processing fee is applied to the loan amount. In this matter also, some banks apply a fixed charge based on the due amount or loan though a regular payer might not be charged with such processing fee by the bank. The second impact of converting the credit card dues to EMI is that the credit limit of the customer is reduced to the extend of the money that the customer is borrowing from the bank in form of outstanding principal. But this impact remains temporary as the credit limit again reaches the normal level once the customer starts making EMI repayments on time. As stated earlier, the customer needs to be cautious regarding the repayment of EMI or else the interest rate would increase to the previous levels. The EMI simply helps in saving the credit score of a customer from falling.
One more thing that the customer needs to note is that the rate of interest does not change during the entire tenure. The rate of interest that was determined during the conversion of dues to EMI is not changed unless and until the customer shows inconsistency in payment of EMI. In such case the interest rate rises to the same level.
Majorly, the concept of EMI is similar to taking a loan and repaying it over specific period. Only here the customer’s total credit card bill is converted into a loan i.e. EMI allowing the user to repay their debt in small installments each month. As mentioned earlier, the customers can choose the period or months through which they want to pay their credit card bill. However, the interest rate changes according to the time period granted to the customer by the bank. As the tenure increases the interest rate charged by the bank increase, a short tenure does not attract much of interest on the amount. But the interest rate would always be lesser than the rate charged by the bank on simple credit card bill payments.
Most banks apply monthly balance method for calculating EMI on credit card bill payments wherein the interest rate keeps on decreasing as the customer continues paying the amount. This method proves more beneficial for the customers as the amount to be paid decreases unlike the flat interest rate, where the interest rate remains constant. In monthly reducing balance method, the interest is just applied on the principle amount which means that the interest charged keeps on reducing as the customer keeps on paying the principle amount. The interest is charged on the remaining amount only. Many banks provide the customers with the option of either converting their whole bill into EMI or providing the option of partial conversion of credit card bill. The customers can always go for the most convenient option in terms of payment and their financial situation.