Remember ‘0% EMI’ schemes? Banks made money, manufacturers and merchants exhausted their inventory and consumers spent with gay abandon (for electronic goods and household items) until RBI played the party pooper. Although 0% EMI schemes were discontinued after RBI ban, the importance of the potent combination of ‘convenient credit’ coupled with flexible payment options, was not lost on the businesses. A workaround, EMI schemes with cash-back, was devised as a replacement to attract the cash-strapped young consumers.
‘EMI at Point of Sale’ is gaining momentum as consumers pay for high value goods or services, including tuition fees, using their credit cards without having to worry about paying it all upfront. EMI schemes with credit card purchases are now being extended to newer segments such as education, hotels & resorts and insurance. With these, volumes are now back to the levels seen during the height of 0% EMI schemes. Credit cards are now issued after rigorous checks to reduce risk of defaults as cardholders increasingly opt for EMI facility on purchases.
Although convenient, consumers need to be aware of the following disadvantages:
- If credit card is used to pay college fees instead of education loan, you would lose the advantage of moratorium period and income tax deductions. Education loans also tend to have longer repayment tenures of 10-12 years when compared to credit card repayment terms.
- Opting for EMI on any purchase would likely mean loss of reward points on those credit card purchases.
- You will incur pre-payment charges on the outstanding amount if you wish to foreclose the EMI facility. Also, closing the credit card account during this period attracts other penalties.
- You could also pay higher interest if you default on your monthly minimum due on the credit card. Non-payment of minimum due, which includes monthly EMI amount, will result in late fees and higher interest being levied on the outstanding amount.