For many consumers, the choice between an EMI card and a credit card can be confusing. Both offer flexible payment options for purchase, but there are some key differences to consider. In this article, we will decode the best payment option between EMI card vs credit card.
First, let us understand what EMI card and credit card is all about. An EMI card is a type of credit card that allows you to split your purchases into equal installments over a period of time. It is a popular payment option for expensive items like consumer durables, appliances, gadgets, and other big-ticket purchases. An EMI card usually comes with a pre-approved limit, which can vary based on your credit score, income, and other factors.
On the other hand, a credit card is a payment card issued by a bank or financial institution that allows you to borrow money to make purchases or pay bills. A credit card offers a revolving line of credit, which means you can use it to make multiple purchases and repay the balance over time. It is also a popular payment option for everyday expenses like groceries, dining out, travel, and entertainment.
Now that we have a basic understanding of the two payment options, let us compare them based on various parameters:
Interest rates: One of the most important factors to consider while selecting between EMI card vs credit card is the interest rate. EMI cards usually offer lower interest rates compared to credit cards, as they are meant for long-term purchases. The interest rate on EMI cards can range from 12% to 24% per annum depending on the lender. On the other hand, credit cards attract higher interest rates, which can vary from 18% to 48% per annum depending on the lender.
Credit limit: Another key parameter to consider is the credit limit. EMI cards come with a pre-approved limit, which is usually higher than the credit limit on a regular credit card. This is because EMI cards are meant for big-ticket purchases, and hence the limit is set accordingly. On the other hand, credit cards come with a flexible credit limit, which is based on your credit score, income, and spending patterns.
Tenure: The tenure of the EMI is another crucial factor to consider. EMI cards allow you to split your purchases into equal installments over a period of time, usually ranging from 3 months to 24 months. This gives you the flexibility to repay the amount in easy installments, without putting a strain on your finances. Credit cards, on the other hand, do not have any fixed tenure. You can choose to make the minimum payment due every month or pay the entire outstanding amount at once.
Processing fees: EMI cards usually come with a processing fee, which can range from 0.5% to 2% of the purchase amount. This fee is added to the EMI, and hence you end up paying a little extra compared to the actual purchase price. Credit cards also come with a processing fee, which can vary from 1% to 5% of the transaction amount. This fee is usually waived off if you spend a certain amount or if you have a high credit score.
Rewards and benefits: Both EMI cards and credit cards offer various rewards and benefits to their users. EMI cards usually offer cashback, discounted EMI, and other rewards for specific purchases. Credit cards, on the other hand, offer reward points, cashback, discounts, and miles for various transactions. You can redeem these rewards for gift vouchers, travel tickets, merchandise, and other offers.
Now, let us look at an example to understand how EMI card vs credit card works in real-life scenarios:
Suppose you want to buy a smart TV worth Rs. 50,000. You have two options - either you can buy it using your EMI card or credit card.
If you use your EMI card, you will have to pay an upfront processing fee of 1% (Rs. 500), and then split the remaining amount into 12 equal installments of Rs. 4,167. You will also have to pay an interest rate of 12% per annum, which amounts to Rs. 3,000 for the entire tenure. Hence, the total cost of your purchase will be Rs. 53,500.
If you use your credit card, you will be charged an interest rate of 24% per annum, which amounts to Rs. 12,000 for a year. You can choose to pay the entire outstanding balance at once or make the minimum payment due, which could range from 3% to 10% of the outstanding balance. If you choose to pay the minimum amount due, it will take you around 5 years to clear the entire debt, and you will end up paying a total of Rs. 93,000, including interest and late payment fees.
Hence, in this scenario, an EMI card seems to be a better option, as it offers lower interest rates and a fixed tenure. However, you should always compare various lenders before making a final decision.
In conclusion, both EMI card and credit card have their own advantages and disadvantages, and it depends on your individual requirements and preferences. If you are looking for a flexible payment option for big-ticket purchases like appliances, gadgets, and other consumer durables, an EMI card could be a good option. On the other hand, if you want a revolving line of credit for everyday expenses and bills, a credit card could be more suitable. It is important to compare various options and choose the one that suits your financial goals and budget.