When To Use Credit Card EMI and When to Avoid Them?

Over the decades, credit cards have become an integral part of our lives. Besides allowing us to manage our expenses with flexibility and convenience, credit cards offer the option to convert larger purchases into Equated Monthly Instalments or EMIs. 

EMIs are one of the most preferred features associated with credit cards. While they are favourable in some cases, if not used wisely, they can lead to potential financial pitfalls. Thus, in order to maintain healthy financial habits, one should essentially know when to use a credit card EMI and when not to. 

When to Use Credit Card EMI?

The following are some financial situations in which availing a credit card EMI option may be beneficial and risk-free:

1. When you are looking for an affordable purchase: Choosing a credit card EMI can be helpful when there’s an emergency and you urgently need to make a high-value purchase, such as electronic gadgets or appliances, but do not have enough money. Through EMI, you can pay in smaller, affordable amounts over a specific period. However, if there are any additional charges that might be associated with the purchase, one should consider it before choosing to pay through EMI to avoid any losses. 

2. Zero to Low-interest Charges: Using a credit card EMI option may be financially prudent if and when there’s a low-interest rate for an EMI purchase, typically found with the best credit cards for consumers, like the Kotak811 credit card. For instance, let’s assume you wish to purchase a refrigerator available at a 10-month no-cost EMI. You can pay the entire amount with ease over a time period in manageable parts instead of depleting your savings or funds and paying the entire amount all at once. 

3. Maintaining cash balance: Using EMI proves beneficial when aiming to preserve cash reserves. It helps reduce any unforeseen financial strain and maintain liquidity by enabling payments to be stretched out over time. In addition to making budget management easier, it enables individual cardholders or companies to distribute funds strategically, thereby consequently optimising cash flow for other essential costs or investments.

When to Avoid Credit Card EMI

Let’s look at situations where you can avoid credit card EMIs.

1. To avoid excessive spending: Credit card EMI is one of the most beloved options primarily because it allows an individual to make big purchases in instalments. However, using it for unnecessary or discretionary purchases has the potential to lead to excessive debt accumulation. EMIs need to be paid on time. You may struggle to repay it on time if you have a high EMI amount or too many EMIs. Hence, one must know how to differentiate between wants and needs and use EMI wisely.

2. High-interest charges: Another situation in which one should avoid using credit card EMIs is when the interest imposed on the EMI is relatively high. In such cases, an individual might end up paying potentially more than the initial price for the purchase, negating any benefits of stretching out payments. It’s crucial to note that with standard EMIs, the interest rate charged may be higher when the duration of the EMI is longer or if the issuing bank imposes higher interest rates. 

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Things to Consider Before Opting for Credit Card EMI

1. Compare offers across varied stores and platforms: The first step before choosing a credit card EMI would be to compare and analyse offers available across various stores and online platforms. By doing this, you can potentially explore better terms such as low-interest rates, lower processing fees, etc. Over and above, comparing enables you to obtain any additional perks that might be available, such as discounts or cashback rewards.

2. Check the interest rates and any included additional charges: It is crucial to meticulously consider the imposed interest rates and associated charges, if any, before choosing a credit card EMI. Knowing and understanding the interest rates ensures you are aware of the additional cost incurred through the EMI. By being informed about such financial aspects upfront, you can confidently decide whether or not choosing EMI will be profitable.

3. Verify your available credit limit: Before selecting a credit card EMI for any purchase, it is important to verify one’s available credit limit. It is a simple step that is often overlooked. Checking your credit card limit ensures you don’t go beyond your spending capacity or encounter unanticipated fees. The moment you purchase something through EMI, that entire amount is immediately blocked from your credit card limit.

Conclusion 

Credit card EMIs are a useful tool for managing one’s finances. Especially for large or essential emergency purchases, credit card EMIs are the most suitable options associated with credit cards. However, much like any other credit card option, it can also have some potential drawbacks. Hence, users need to know when to use credit cards EMI judiciously and when not to while being aware of the benefits and risks involved. This way, one can maintain financial stability and maximise their credit card benefits, like those of Kotak credit cards. Remember to make EMI payments on time.