Debunking Common Myths About Credit Card EMIs
Credit Card EMIs have become convenient for big-ticket purchases without straining finances. However, many misconceptions surround this payment option, leading to confusion and apprehension among Credit Card users. This article debunks common myths about Credit Card EMIs and clearly explains their workings.
Myth 1: EMIs Negatively Impact Credit Score
Fact: EMIs can positively impact a credit history when managed responsibly. Regularly paying off EMIs can help manage the credit utilisation ratio (the amount of credit used compared to the credit limit) and eventually lower it. A lower credit utilisation ratio can positively impact the credit score. However, timely EMI payments are crucial, as late payments can negatively impact the credit score, like missing payments on regular bills.
Myth 2: EMIs Cannot Be Paid Early
Fact: Many Credit Card EMI plans allow users to prepay with minimal charges, allowing them to pay off the remaining balance at any time during the tenure. This can potentially save on interest charges. Checking with the card issuer about their specific terms and conditions regarding early EMI repayment is crucial.
Myth 3: EMIs Are Only Available for Select Products
Fact: Credit Card EMIs are not limited to electronics or home appliances. Most banks offer EMI options on various products and services, including gadgets, furniture, travel packages, medical treatments, and education courses.
Some banks even allow card users to convert their existing Credit Card purchases into EMIs, providing added flexibility and convenience.
Myth 4: EMIs Are Only for High-Value Purchases
Fact: While EMIs are often used for big-ticket items, many banks, like Federal Bank, offer EMI options for purchases as low as ₹1,500.
This means card users can use EMIs to better manage their cash flow, even for relatively smaller purchases. They can better plan monthly expenses by breaking down the cost into smaller, more manageable instalments without overburdening the budget.
Myth 5: Credit Card EMIs Are Always Expensive
Fact: Credit Card EMIs are often viewed as more expensive than upfront payments, but this is not always true. Many banks, like Federal Bank, offer low interest rates on EMI options for select products and special promotions. This allows card users to pay smaller monthly amounts, making the purchase more manageable. In fact, EMIs break down large expenses into bite-sized repayments that are easier on one's wallet.
Myth 6: EMIs Are Always Interest-Free
Fact: While some banks and merchants offer no-cost EMI options, this is not always the case. In reality, many EMI schemes indirectly include interest charges in the no-cost EMI. When a no-cost EMI is advertised, the interest component is often built into the product's price, meaning the interest amount is bundled into the price paid for the product.
Myth 7: All Purchases Are Eligible for EMI Conversion
Fact: Transactions expressly forbidden by law or regulations and specific merchant categories, such as those involving gold, jewels, ATM transactions, cash transfers, petrol, etc., cannot be converted into EMI. It's essential to check with the bank or the merchant to understand the specific eligibility criteria for EMI conversion before purchasing.
Myth 8: One Can't Earn Rewards on EMI Purchases
Fact: Contrary to popular belief, most Credit Cards allow card users to earn reward points on EMI purchases. The majority of Credit Cards consider EMI purchases as regular transactions and award attractive cashback and instant discounts as per the card's reward structure.
Myth 9: Foreclosing an EMI Attracts High Charges
Fact: Banks levy a foreclosure fee, which is a small percentage of the outstanding principal, often capped at a reasonable amount. So, if one has surplus funds, consider foreclosing high-interest EMIs to save on interest in the long run. Most banks allow EMI foreclosure, either online or by contacting customer support.
Myth 10: EMIs Encourage Impulsive Spending
Fact: A common concern surrounding Credit Card EMIs is that they may tempt users to overspend or make impulsive purchases. The ability to break down large expenses into smaller, more palatable instalments can create the illusion of affordability, leading some to splurge on unnecessary items.
To avoid impulsive spending, set a clear budget and stick to it. Determine the monthly EMI allowance, considering income, essential expenses, and savings goals. Be mindful of spending and use EMIs judiciously to maintain financial health.
In Closing
Credit Card EMIs can be beneficial when used wisely, but successful usage requires financial discipline, budgeting, and timely repayments. Federal Bank offers a wide range of EMI options tailored to one's needs. Use Federal Bank's Credit Card EMI feature to make purchases more economical and convenient.