What is an EMI on Credit Card Purchase ?

Many of us know in General what an EMI is but what most do not know the difference of availing EMI on a Credit Card vs that on Personal or any other form of Loans.

Lets suppose you BUY a new Sony LCD TV Costing Rs 50,000 to enjoy the ongoing IPL Season. However, your monthly take home salary of Rs 75,000 may not help you pay the next credit card bill which has this Big Ticket Purchase of Rs 50,000. So what is the way out ? 3 Letter Word EMI. – Equated Monthly Installment. Banks have tied up with Retailers and are increasingly pushing for EMIs on Consumer Durable Products.

So what is EMI on your Credit Card Account ?
Lets assume that you have a ICICI Bank Credit Card with Rs 100,000 as Credit Limit. Your APR – Annual Percentage Rate / Interest Rate is say 24% PA. When you make a purchase of your TV and opt for EMI, a new sub-account is created under your main account. Let us assume you have been given EMI of 12 Installments at 11.99% interest which will approximately work out to Rs 4750 / Month for 12 months in a row.

So when a new sub-account for EMI is created, does this mean a new entry in CIBIL Records ? – The answer is No. Only your Credit Card account status will continue to be reported to CIBIL every month.

How EMI Reflects in my next month’s Bill ?
In your next months Bill, apart from your routine purchases such as Fuel, Movie Tickets EMI of Rs 4750 will also occur as a charge.

What if I Fail to Pay My Monthly Due Amount in Full ?
Lets assume now your monthly due is Rs 9000. If you fail to pay Rs 9000, then 24% interest will be levied on the balance amount plus the same rate of interest gets charged on every additional purchase until you pay-off in full any one of the subsequent months. This is the negative side of Credit Card billing mechanism. See the EMI of Rs4750 already includes 11.99% interest and on top of it you will pay 24% more.

Any option to mitigate the EMI Risk ?
Bankers and Finance guys are the most shrewd businessmen. They will design products in such a way that they always stand to gain. yes, some banks do offer Insurance on EMI so that in case of an emergency the insurance takes care of your Minimum dues for certain period but not the entire amount. However, you’ll have o purchase insurance upfront with a premium 🙂

So the bottom-line is Financial Discipline is a must for a healthy life. Sure BUY the desired TV, only when you have atleast 50% of the cost paid upfront [set your own rule], so that in case of adversaries you don’t suffer. Questions and Critics are Welcome.

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