EMI Can Be A Wise Way Of Managing Your Account Balance. Here’s How Credit Cards Can Help You

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You have heard about EMIs and how they save money. But do you know, credit cards can help you save even more when you opt for an EMI?

Read on to find out how credit cards can save you money over and above the amount you save by opting for an EMI.

The Best Features of an EMI

An EMI, or Equated Monthly Instalment, is the amount you need to pay every month when you take a loan. Generally, when you open a credit card repayment calculator, it asks you to provide details like loan amount, interest rate, and loan term. 

On entering the details, the calculator would quote the EMI. It separately displays the amount you need to pay every month and the total interest you would pay during the tenure. 

The most significant benefit of the EMI facility is that it allows you to create a budget and stick to it. As you know how much you need to keep aside every month, it can become easy to repay the loan. 

EMI – Equated Monthly Installment acronym, business concept background

Another benefit of an EMI is that you can pay more on certain months when you have some extra cash in your pocket. By paying a lump sum, you can bring down the net payable amount and increase your credit score. 

Hence, by opting for the EMI facility, you are only spending a part of your earnings every month and earning interest on the remaining amount. 

How Can a Credit Card Help You to Save More?

If the EMI facility equips you to save money, a credit card can take your savings one step further.

A credit card can be especially helpful when you have to repay more than one loan. While it can be mentally taxing to keep track of the various dates of repayment, a credit card can take care of all your EMI payments.

The primary advantage of paying your EMIs with a credit card is that you can get additional cashback on the amount you pay.

Hence, while EMI enables you to save money by spreading out your payments, a credit card gives you additional rewards for paying your bills with the card.

Let us understand this with an example.

Imagine you buy an air-conditioner whose cost price is INR 50,000, and you pay the entire amount upfront. The seller offers you a discount of INR 5,000, and the net amount you pay is INR 45,000. As you are making the full payment, you lose the opportunity to earn interest on the amount.

Now compare this to an EMI scheme.

Let’s suppose the cost price of the AC remains the same, the lender charges a 9% interest, and the repayment term is two years, you have to pay around INR 2,284 every month. The total amount you pay extra is INR 4,822 in 2 years. Hence, you are not only getting more time to repay the amount but also earning interest on the amount that is lying in your bank.

Now let’s imagine that you are making the monthly payments with a credit card that gives you a 2% cashback on all bill payments. This option allows you to get an extra INR 45 every month, thereby bringing down the EMI to INR 2,239 every month. Hence, in two years, you save a total of INR 1,080, and the effective interest of your loan drops down to 7.5% from 9% earlier.

What is Credit Card EMI?

Usually, when you pay a bill with your credit card, the lender gives you time between 20 and 50 days to repay the amount without any interest.

Hence, if you pay your loan EMI on April 3rd, the card issuer would generate the bill on May 1st, and the due date would fall between May 20th and May 25th. In essence, you are getting up to 50 days extra which can give you ample time to arrange the funds.

Going one step further, you may also apply for the Credit Card EMI scheme. The Credit Card EMI scheme allows you to request the lender to convert a bill of 2500 and above into equated monthly instalments with a repayment term of 3 to 24 months.

With the Credit Card EMI scheme, you can defer your payment and yet continue enjoying the loan or credit.

However, before opting for the EMI scheme, you should carefully evaluate the following factors:

Processing Fee

The processing fee is a single-instance fee that a card issuer charges for providing you with the EMI facility. They usually charge up to 1% of the amount you spent using your credit card.

Interest Rate

The card issuer will charge interest on the amount you have taken as a loan. It is better to check the interest rate and calculate the savings in real terms before opting for the EMI scheme.

Pre-closure Charges

Sometimes, you may want to clear off the credit card debt early by paying a lump sum. However, some lenders charge up to 3% of the amount you are willing to prepay.

Hence, before going for the credit card EMI scheme, check whether it is really leaving you with more cash in hand or increasing your liability surreptitiously.

The Best Path to Tread On

By now, it is clear how a credit card can help you to save extra cash on your EMI payments. But what can you do to get the best from your credit card EMIs? Here is what you can do.

Choose a Short Tenure

When you choose a long tenure, the card issuer charges a higher interest rate. The best way you can get lower interest rates is by selecting a short term.

Select the Right Credit Card

Credit cards are available in various forms. Each card is unique in its own way. If saving money is high on your agenda, it is better to choose the best rewards credit card in India.

Pick a Card When It’s on Offer

Sometimes, card issuers run festive offers, in which they offer benefits like zero joining fees, zero annual fees, or nil processing fees. Keep an eye for such events and grab the best card that suits your style.

Go Through the Terms

It is essential to read the terms and conditions before signing the document. Find out information about the charges and other terms before committing anything.

Pay on Time

Defaulting on credit card EMIs can have a devastating effect on your credit score. Do not let that happen ever.

Conclusion

When used judiciously, your credit card can fuel your journey to better savings and more rewards. If you still need more reasons to save, then try CRED. CRED is the fastest way to earn rewards while you pay your card bills.

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