EMI Credit Cards: How do they simplify your shopping experience?

Are you a shopaholic looking for not just the best deals in the market but also make shopping light on your wallet? If that is the case, EMI (Equated Monthly Instalment) cards might just be the perfect fit for you. These cards, which are offered by banks and NBFCs (non-banking finance companies), convert your big-ticket purchases into EMIs instantly. Here is a summary of how EMI cards work, their benefits and disadvantages.

What are the features of EMI cards and how do they work?

The card is aimed at individuals purchasing high-value consumer durable items and electronic gadgets. Most EMI cards come with a pre-approved credit limit. These cards work like EMI conversion options provided by banks on their debit and credit cards. The only difference is that when you make purchases using the card, it mandatorily turns into EMIs unlike in the case of EMI conversion where the choice is with the customer.

Some cards even come with pre-qualified shopping benefits and pre-approved consumer durable and two-wheeler loans. With this, you can use the EMI card to buy your favourite items. The pre-qualified loans and shopping benefits, however, will vary depending on the customer profile. Once your purchase is converted into EMIs, you have to keep a sufficient amount in your bank account as the bank/NBFC will deduct the installment amount every month on the specified date. Your EMI amount will be auto-debited from your bank account on the due date through the NACH (National Automated Clearing House) mandate registered at the time of your loan application.

What is the eligibility and the tenure of EMIs?

The eligibility for getting an EMI card is almost similar to credit cards and loans. The individual should be aged between 21 years and 65 years, have sufficient income and a good credit score. Though the income eligibility varies, lenders typically require salaried individuals to have a minimum income of ₹10,000 per month and self-employed persons to have an annual ITR (Income Tax Return) of ₹6 lakh to avail the EMI card. The EMI tenure varies—from three months to 60 months. Most EMIs fall in the six months-12 months category. The tenure is decided at the time of buying the product.

You should provide identity, address and income proof (Aadhaar card/voter ID/PAN card/driving licence, salary slips, latest bank statements and ITR). Since your EMIs will be deducted every month, you should also provide a cancelled cheque and a signed ECS (Electronic Clearing House) mandate.

What are the advantages of EMI cards?

EMI cards offer a host of benefits that include zero down payment, gift vouchers, reward points, discounts and cashbacks on purchases. Some cards offer cashback of 2.5%-5% on all online spends. But the benefits are capped at specified limits. EMI cards, like in the case of credit cards, also offer an interest-free period of up to 50 days on purchases.

The biggest advantage is, however, the splitting up of big-ticket purchases into manageable monthly payments. With the card, you will also be able to buy your favourite product instantly at the outlets and distributors of leading brands.

What are the disadvantages of these cards?

Some lenders market these cards as offering ‘no-cost EMIs’ or ‘zero cost EMIs’. This means that if you purchase a product for ₹12000 and avail a ‘no-cost EMI’ for six months, then your monthly outgo will only be ₹2000. Typically, this means that there will not be any interest or additional charges. But it does not work like this in most cases. Moreover, RBI (Reserve Bank of India) banned ‘no-cost EMIs’ in 2013 stating that lenders hide the interest element in the form of processing fee and pass it on to customers.

Do remember that lenders charge a minimum interest of 10% per annum on such purchases. They also levy processing fee, facilitation fee and documentation charges that will increase your purchase costs. You should not buy anything using an EMI card if you are not in a position to repay the instalments on time. So, it will be better if you do a cost-benefit analysis before deciding on making purchases using an EMI card.

Allirajan M is a journalist with over two decades of experience. He has worked with several leading media organisations in the country and has been writing on mutual funds for nearly 16 years.