Converting credit card purchases into EMIs can provide an effective approach to handling a large purchase. Generally, there will be fees associated with this convenience, which may be different based on the credit institution.
In order to make sound financial choices in your best interest you need to understand these fees.
Key charges involved in EMI conversion
- Interest rate: When you decide to convert a purchase into EMIs, banks normally assess an interest rate against the outstanding balance.
- Processing fee: When you convert a transaction to EMIs, banks usually charge a one-time processing fee. There is usually a minimum and maximum limit for this fee.
- Foreclosure fee: If you make the decision to pay off your EMI before the period, banks will often charge you a foreclosure fee, which is usually a percentage of the unpaid principal.
- GST: According to the latest tax regulations, GST is applicable on interest, processing fees, and foreclosure fees.
Factors influencing EMI conversion charge
Costs associated with EMI conversions can differ based on many different aspects:
- Credit card issuer policies: Different businesses have various interest rates and fee schedules.
- Transaction size: You might be charged varying rates/fees depending on larger transaction sizes.
- EMI tenure: Longer tenures may ultimately require higher overall interest payments.
- Type of purchase: Some banks may apply different rates and/or exclude specific merchandise, such as jewels or petrol, altogether from the ability to be EMI converted.
Associated fees and charges
Tips to manage EMI conversion charge
- Review offers: Review all interest rates and fees in other banks prior to deciding to EMI conversion, to help with what is most cost effective.
- Terms and conditions: To avoid nasty surprises, be aware of any processing fees and early foreclosure fees that may go along with the EMI conversion.
- Assess your financial capacity: Ensure your EMI payments fall within your budget each month to avoid financial stresses.
In conclusion, you must first identify if any costs such as the interest rate, the processing fee or even penalties for closing the EMI early will apply. By understanding the associated costs and thoroughly reviewing the terms offered by your credit card, you can make informed choices to promote your financial health.
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