Banks are offering EMI option in view of cash problem amid Corona crisis:
New Delhi. The economic condition of the people is deteriorating due to the corona pandemic. Due to job loss and salary cut, people are troubled due to lack of cash, due to which they have to control their expenses and are finding it difficult to repay the loan.
However, RBI has also announced to give 6 months loan moratorium facility to the customers and people are also taking advantage of it. But, at present, most of the customers who are facing cash problem are using credit cards. As a result, their credit card bills are coming up.
In such a situation, you do not have to pay more bills at once. To avoid this, banks have also given the option of converting the credit card bill into EMI so that customers do not have to pay the entire amount at once. If you have also converted the credit card bill into EMI, then first know what are the advantages and disadvantages of it, otherwise you may also have to pay more interest on the bill.
What is EMI option ?
Those who use credit cards are constantly getting offers of EMI by banks or NBFCs. Which means you can split the entire bill in small installments and deposit the entire amount over the next few months. Although, it sounds good to hear that less money will have to be paid, but it also has many disadvantages. Many banks also reduce the credit card limit of the customer on opting for EMI option. By the way, it depends on the banks for how many days they give the option of EMI. But, most banks offer the option to deposit the entire amount through EMI between 3 months to 2 years. The amount of EMI is decided according to the tenure of the loan.
EMI option affects credit limit and CIBIL:
If the customer converts the entire bill into small installments through EMI, then its effect is also seen on his CIBIL. Also the credit card limit is deducted from the full limit. Suppose someone’s credit card limit is Rs 70,000 and he has spent 50,000. In such a situation, instead of not depositing the bill of 50,000 together, he has decided to pay every month in small installments which will be called EMI option. In such a situation, the credit limit of the customer remains only Rs 20,000. But as the customer pays the bill amount, the credit limit will increase accordingly. But it is considered a good option to avoid EMI as much as possible.
Separate charge has to be paid on EMI option:
By the way, listening and seeing the customer, the EMI installment amount seems to be much less than the entire credit card bill. But, the truth is that the customer incurs a lot of separate charges which he has to deposit through the option of EMI. An additional interest is charged from the customer through the EMI bill.
The interest has to be paid according to the tenure of your loan. If the customer increases the amount of the bill through EMI, then the interest may also have to be paid more. Because the date of depositing the bill through installment is extended further, then the interest also increases. Many banks charge fees ranging from 1 to 3 per cent in the name of processing fees. If someone decides to deposit the entire bill before the EMI is due, the bank charges a separate processing fee from the customer. Also, 18 per cent GST is also applicable as per the rules.
Understand with example:
Suppose you have opted for three months EMI option from the bank due to lack of cash and the bank charges your annual interest at the rate of 20 per cent which will be higher than the normal interest. On the other hand, if you deposit the entire amount in one year, then the interest rate will be 15 percent, but you will have to deposit more money than in 3 months. The longer the period increases, the more the interest will increase.
If someone’s credit card bill is Rs 20,000 and he chooses the EMI option for 3 months i.e. 90 days, then the total interest {20,000*(20%/365)*90} = Rs.986.3 will be applicable.
On the other hand, if the period is increased to 1 year i.e. 12 months, then the interest will increase further. Calculation: [20,000*(15%/365)*365] = Interest up to Rs.3,000 to be paid separately.
Keep in mind before EMI option:
- Convert credit card bill to EMI only if you feel that cash is going to be a problem for a few days and you cannot pay the bill on time
- If the bills are not paid on time, then up to 40 percent interest may have to be paid.
- Late payment also has a bad effect on the credit score of the customer, which can make it difficult to take the loan later.
- Converting credit card bills to EMI also attracts a separate charge and is much more expensive than other options
- Read all the options and rules carefully before paying the credit card bill through EMI
- Do not opt for EMI option unless you feel that you cannot pay the bill on time
- Also check the spending limit or else sometimes banks cancel the EMI option.
