Sandipan Mitra is the CEO and co-founder of Pice. He boasts eight years of experience in the B2B and fintech sector. Sandipan's journey includes significant roles at multiple Indian Unicorns Including Product at PayU, and as founding member / VP, Product at Open Financial Technologies.
EMIs attract processing fees and interest charges, and the converted amount temporarily reduces your available credit limit.
While EMIs make purchases affordable, avoid using them for impulse buys to prevent long-term financial strain.
In a world driven by instant gratification and the desire to flaunt, splurging on high-priced items is a common thing. For those who can not pay the full amount upfront, use credit card EMIs (Equated Monthly Instalments) to make the payment method more convenient and manageable.
However, the question is how does credit card EMI work. Knowing the mechanism behind it can help you stay financially healthy. Scroll down to explore!
How Does Credit Card EMI Work?
Let us understand this with an example. Suppose your credit card limit is ₹1,00,000 per month and you want to buy a ₹50,000 watch for the upcoming festive season using this credit card.
Now, if you opt for the EMI option instead of paying the entire amount, you can select the 12-month repayment tenure with an interest rate of 14% per annum. Now, look at the table below, which shows the exact monthly payment you will have to make.
Cost of the Product
Repayment tenure
Interest Rate
EMI Amount
₹50,000
12 months
14% per annum
₹4,489
You can typically convert a transaction to EMI either at the point of sale or later through the issuer's website or app.
Advantages of Using Credit Card Purchases for EMIs
Reduced Interest Rates
Some lenders provide interest-free EMIs (only on specific products from certain retailers). Then, choosing the credit card EMI option becomes useful. Typically, lenders charge interest for choosing the EMI feature. However, the rates of interest are generally lower than the standard interest rates on credit cards.
Affordability
With the EMI option, you get a chance to break larger purchases into EMIs. You do not need to cross the budget while increasing your purchasing power.
Flexibility Repayment Terms
Lenders offer you to select the tenure as per your convenience, ranging between 6 and 18 months. So, you get the chance to access your financial needs and make the selection accordingly.
Convenience
Choosing the EMI option on a credit card is often hassle-free. You do not need to go through the extensive documentation process.
Increased Credit Score
By making timely payments using the EMI feature, you demonstrate your financial responsibility, which can positively impact your credit score.
Foreclosure or Cancellation
Credit cards' EMI feature offers you the option to cancel. Depending on your financial flexibility, you can pay off the remaining amount in full using cash or a debit card. This way, you can avoid additional interest charges.
Things to Consider Before Choosing an EMI on Credit Cards
Not All Credit Cards Offer EMI
You need to know that not every credit card comes with an EMI facility. First, verify whether you are allowed to convert the purchase into EMIs and then make the decision.
Opt for Online Transactions
If you use the EMI plan for online purchases, you can enjoy additional offers and perks.
Full Settlement on Time
Do not forget to pay your EMIs before the due date; it can lead to negative consequences like late payment fees and can negatively affect your credit score.
Impulse Purchases
It is advisable to use credit card EMIs for necessary purchases. However, if you use this facility for impulse buying, you can invite a debt trap. So, ask yourself first, then make a decision.
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How Does Choosing the EMI Option Affect Your Credit Card?
Decreases Credit Utilisation Ratio
By choosing the EMI option for credit card transactions, you can keep the credit utilisation below 30% is generally recommended for a healthy credit score.
Introduces Interest and Fee
With credit card EMIs, you introduce interest on the outstanding EMI balance, as well as potential processing fees, depending on the issuer.
Alternatives to the EMI Facility on a Credit Card
If you want to buy a high-priced product with the EMI facility, you can opt for a personal loan. You may get a lower interest rate if you are a regular customer with a good track record. You can also use your negotiation power while dealing with the bank representative.
After evaluating how does credit card EMI work, it is now your turn to decide. Choose this option if you want to make large purchases and pay the bill in instalments.
However, while it temporarily reduces your available credit limit and comes with interest charges and processing fees, it also gives you the flexibility to manage large expenses without straining your budget.
FAQs
What is a credit card EMI?
A credit card EMI lets you convert a large purchase made using your credit card into smaller monthly instalments, repaid over a fixed period with or without interest.
How can I convert my purchase into EMI?
You can usually opt for EMI at the time of purchase (especially online) or later via your bank’s mobile app, website, or customer service.
What is the minimum purchase amount eligible for EMI?
The minimum amount varies by issuer but typically starts from ₹3,000 to ₹5,000.
Is there any processing fee for converting to EMI?
Yes, banks may charge a one-time processing fee (usually 1–2% of the transaction amount) depending on the offer.
What happens to my credit limit after converting a purchase into EMI?
The transaction amount is blocked from your credit limit and gradually released as you pay off your EMIs each month.
Sandipan Mitra is the CEO and co-founder of Pice. He boasts eight years of experience in the B2B and fintech sector. Sandipan's journey includes significant roles at multiple Indian Unicorns Including Product at PayU, and as founding member / VP, Product at Open Financial Technologies.
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