Converting an eligible purchase into monthly instalments using a credit card eliminates the need to apply for a separate loan. It is commonly used for buying gadgets or home appliances.
Credit card EMI can be simpler
Credit card EMI can be a convenient option when a card issuer allows an eligible purchase to be converted into monthly instalments. It does not require the borrower to apply separately for a loan, making the process relatively straightforward.
It can be useful for purchases such as televisions, laptops, smartphones, furniture and home appliances.
Banks and merchants often promote “no-cost EMI” offers. However, borrowers should check the terms before accepting such an offer. Processing fees and GST may apply, while some deals may also involve giving up an instant discount available to customers making a full payment.
Personal loans suit larger expenses
A personal loan is generally better suited for substantial borrowing needs or expenses that cannot be charged to a . Interest rates vary based on your income, credit history, and existing debt profile. Choosing a longer repayment tenure lowers the monthly instalment but increases the total interest paid over time. Additional charges, such as processing fees, also increase the final borrowing cost.
Don’t compare only monthly EMI
A lower EMI does not necessarily mean a cheaper loan.
For example, a lender may offer a lower monthly payment because the repayment period is longer. While this can make the loan easier to manage each month, the borrower may end up paying more interest over the full tenure.
Before choosing between a credit-card EMI and a personal loan, calculate the total amount payable under both options. Check the interest rate, processing fee, GST, repayment tenure and any prepayment or foreclosure charges.
Comparing these figures can provide a clearer picture of the actual cost of borrowing.
Consider your credit-card limit
A large purchase made through a credit card can consume a significant portion of the available credit limit.
This can increase credit utilisation. High utilisation may affect a borrower’s credit profile, particularly if balances are already outstanding on other credit cards.
If a purchase would use most of the available credit limit, a could be considered, provided the borrower can comfortably afford the repayments and the overall borrowing cost is reasonable.
Unpaid card balances a concern
Consumers should also be cautious about making a large purchase on a credit card and leaving the balance unpaid.
Credit card interest rates are generally higher than those charged on many personal loans. Paying only the minimum amount due does not clear the outstanding balance, and interest can continue to build on the unpaid amount.
If a borrower already expects to be unable to pay the full credit-card bill, it may be worth comparing the cost of converting the purchase into an EMI with the cost of taking a personal loan.
Which option should you choose?
For a smaller purchase, a genuine no-cost or low-cost credit-card EMI may be useful, particularly when processing fees and other charges are limited.
For a larger expense, a personal loan may have a lower overall cost if the interest rate and associated charges are more favourable.