Should you pay credit card bill via EMI?

To convert your bill into EMIs you need to log on to your net banking account and opt for the available option(s). Alternatively, you can also call the customer helpline or visit the branch of the credit card issuer to pay the bill via EMIs.

Paying a credit card bill via equated monthly instalments (EMIs) essentially means converting the credit card dues into a loan and paying it via EMIs. This method of clearing credit card dues has minimal impact on your credit score, which would otherwise take a hit in case you defaulted on paying your credit card dues on time. Therefore, this is a convenient option for those credit cardholders who are unable to pay their entire credit card bill on time.

If you pay the complete bill amount before the due date, you need not pay any interest. However, if you convert the amount into EMIs, then you need to pay the bill amount along with the interest levied.

To convert your bill into EMIs, you need to log in to your Net banking account and opt for the available option(s). Alternatively, you can also call the customer helpline number or visit the branch of the credit card issuer to pay the bill via EMIs.

You can either convert the entire billing amount into EMIs or select specific card transactions crossing a threshold amount for which you want to pay via EMIs.

 How paying your credit card bill via EMIs works

When you convert credit card dues into EMIs, your credit card bill gets divided into smaller tranches or EMIs to be repaid for a fixed number of months, as opted. The smaller tranche or EMI includes a portion of principal outstanding and an interest component, which you need to pay every month until the full credit card bill is paid.

Further, the bank or the card issuer temporarily blocks/reduces the credit limit by an amount equal to the bill amount converted into EMIs. When you start paying your EMIs, the bank gradually increases the credit card limit by an amount equal to the EMI paid.

Adhil Shetty, CEO, BankBazaar.com said, "Your credit card limit will be reduced by an amount equal to the full outstanding amount." He further explained, "For instance, if your credit card limit is Rs 50,000 and you buy any item worth Rs 40,000, then your credit limit will come down to Rs 10,000 after you go for repayment of bill via EMIs."

Fee and charges for paying credit card bill via EMIs

Interest rate charged on bill amount converted into EMI

This interest rate varies from one card provider to another. Generally, the interest rate is linked to the tenure of your loan: the longer the tenure, the higher the interest. Normally, the tenures offered by banks or card issuers, to convert bill to EMIs, are six months to two years.

Sahil Arora, Director & Group Head, Investments, Paisabazaar.com said that as with other loans, banks set the interest rate of credit card EMIs based on the risk assessment of their credit card holders. Credit card issuers usually consider the credit card spends of their existing card holders and their repayment track record before offering them pre-approved credit card loans. Hence, the interest rate of credit card loans would vary on the basis of the credit profile of the borrowers. "Card issuers may also consider other factors, such as the loan tenure, loan amount, job profile of the card holder, interest rate trajectory and overall macroeconomic conditions while setting the interest rate of their credit card loans," said Arora.

Processing fee

Some banks or credit card issuers don't charge any processing fees at all. However, some banks may levy an upfront loan processing fee. "The fee varies from bank to bank and is usually up to 3 per cent of the amount of your bill (converted into EMIs) or a fixed sum depending on your card and the bill or loan amount," Shetty said. 

Credit card EMI interest rates comparison :

Credit Card Issuer:  Interest charges on payment of credit card dues via EMIs (P.A)

SBI Interest: 22% | Processing fee: 2% of the amount converted, subject to a minimum of Rs 199 and a maximum of Rs 1,000 + applicable taxes 

Bank of Baroda Interest: 18% |Processing fee: 2% of the transaction amount (subject to a minimum of Rs 100) 

HDFC Interest: 18% | Processing fee: 2% of the transaction amount, (subject to a minimum of Rs 100) 

ICICI 16% |Processing fee: 2% of the transaction value 

Axis Interest: 18% |Processing fee: 1.5% or minimum of Rs 150 whichever is higher 

Note: Data is indicative and not exhaustive. Goods and Service Tax (GST) is included in the charges wherever needed. The websites have not mentioned if the interest charges include or excludes processing fees. The data is provided as it is given on respective bank's website. Also, Interest and charges may vary depending on type of credit card and its terms and condition with the associated merchandise. Also, the interest offered will depend on the EMI tenure you have applied for. 

Prepayment charges

Check for the pre-payment charges along with applicable taxes. Banks or card issuers may charge you a pre-payment fee if you wish to clear your dues before the end of the loan EMI tenure. Moreover, you may also have to pay off the interest on a pro-rata basis. This means that you need to pay the accrued interest until the day on which the EMI (loan) account is closed. 

GST

Wherever required, 18 per cent GST is applicable on all charges and fees. 

Do the math's while selecting the EMI option

If you think the EMI option is very useful as you can save yourself from paying a huge amount of money at one go, you need to rethink. Typically, when you opt for a longer-term EMI, banks or the card issuer offers a lower interest rate, but it doesn't mean that the total amount of interest you have to pay is less.

For instance, if you opt for a tenure of 3 months, the bank might charge interest at the rate of 20 per cent per annum (P.A.) but if you opt for a tenure of one year, the bank may charge an interest rate of 15 per cent P.A. So, if you choose the 15 per cent P.A. option because the interest rate is lower, you actually end up paying more. Take a look at the following illustration. 

Let us suppose you credit card bill amounts to Rs 10,000.

Now, if you opt for a 3-month (90 days) tenure repayment option, the interest accrued will be: Rs 493.15 [10,000 x (20%/365) x 90]

While if you opted for a 12-month tenure, the interest accrued will be:

Rs 1,500 [10,000 x (15%/365) x 365]

Therefore, a bank offering a lower interest rate on a longer tenure doesn't mean you will save money. 

Pros and cons of paying credit card bill vis EMIs

Only if you are unable to repay the entire credit card bill amount by the due date because of cash flow problems or lack of funds then you can consider opting for the EMI option. This is because failure to clear the credit card dues on time would attract finance charges of around 40 per cent P.A, and non-payment of the minimum due amount would additionally attract late payment fee of up to Rs 1,000. This can adversely impact one's credit score, which in turn would adversely impact future credit card and loan eligibility prospects.

Finance charges typically mean the interest charged on a debt you owe for a while. It is calculated based on an annual percentage rate (APR) along with the amount of money you owe, and the period for which you owe it.

The interest rates offered by banks on loan repayment via EMIs are significantly lower than the finance charges levied on unpaid credit card dues.

However, converting credit card bill to EMI is also a costly option as you still need to pay additional interest cost on the credit card bill. So, one should not frequently convert credit card bill into EMI habitually as this option will also drain your savings over a period of time. 

What should cardholders do

You should consider the EMI option only in case of an emergency when you are unable to pay your credit card dues in time and have also evaluated other ways of paying the bill. Also, before applying for the EMI option, compare the interest rate levied on your credit card EMIs with that of a personal loan or top-up home loan. Go with the option that is cheaper from among those that are available.

You must scan the financial marketplaces. At times, you may find that banks also offer a pre-approved loan at a lower interest rate compared to interest rate levied on paying card dues via EMIs.

Arora said that if the amount for EMI conversion is a sizable one, the credit cardholder should first enquire about personal loan offers available from the same card issuer and other lenders. Availing a personal loan to pay off the credit card dues can reduce interest outgo. "Credit cardholders with existing home loans can also avail top-up home loans to pay-off their credit card debt. Top-up home loans come with lower interest rates and longer tenure vis-a-vis personal loans. "Some banks have started offering digital top-up home loans with quick disbursals. Availing a conventional top-up home loan can come with relatively longer turnaround time," Arora further said. 

Points to note:

Take the EMI option only if you know you'll be able to make the payments on time. Else a missed payment on credit card dues will affect your credit score.

Make sure you have spending limit left on the credit card to be able to avail/convert the desired bill amount on EMIs. If you don't, your EMI conversion request will be rejected. This is because your credit card limit gets reduced to the extent of the card dues that you choose to pay via EMIs.