Credit card EMIs have quietly become the default way to fund big-ticket spends in India. Phones, appliances, holidays, even school fees are now routinely “broken into EMIs” at the billing counter. On the surface, it looks like a win. You keep your cash flow intact, the monthly outgo is manageable and the transaction is closed in seconds. The catch is that an EMI on your credit card is still a loan, with its own interest, charges and small print. Understanding those details upfront can save you from expensive surprises later.
How a card EMI actually works in the background
When you convert a transaction to EMI, the bank is not doing you a favour, it is restructuring your dues. The purchase amount is carved out and treated as a separate loan linked to your card. Your bank blocks that amount from your overall credit limit and recovers it in fixed instalments over a chosen tenure such as three, six, nine or twelve months.
Each month, the EMI (principal plus interest) appears as a line item on your card statement. If you pay the full statement amount on time, you avoid the punishing revolving interest, but the blocked limit is released only gradually as you repay the EMIs. Many people miss this and wonder why their “available limit” stays low long after the shopping is done.
Interest rates and fees can change the real cost
The marketing focus is always on “easy EMIs” and “low monthly outgo”. The real number you should care about is the annual interest rate. For most banks, EMI conversion rates are much lower than the usual 30-40 percent revolving rate, but they can still sit in the 13-24 percent range. On top of this, there is usually a one-time processing fee and GST on that fee.
With festival offers, banks sometimes quote very low or even zero interest for a limited period. Even then, it is worth doing a quick comparison with a personal loan or a consumer durable loan from the same bank. A slightly lower rate or fewer add-on charges can make a meaningful difference if you are repaying over 12 or 24 months.
Why “no-cost EMI” is not always free
No-cost EMI sounds perfect, which is exactly why it is advertised so loudly. In practice, somebody is paying the cost. Often the retailer or the brand gives up a part of its margin as a subvention to the bank. In other cases, the discount you would have received for full payment quietly disappears when you opt for EMI.
The simplest way to judge is to ask two very basic questions at the counter. What is the final amount if you pay upfront and take the full discount. What is the final amount including all EMIs, processing fees and taxes. If the second figure is higher, then the EMI is not really “no cost”, even if the interest rate printed on the flyer says zero.
Flexibility is limited once you lock into EMIs
Another aspect that trips people up is prepayment. With a normal personal loan, you can often part-prepay or close the loan early after a lock-in period. Many card EMIs do not work like that. To close the EMI, you may have to pay the entire outstanding in one shot and some banks also levy a foreclosure charge.
So if you are expecting a bonus or cash inflow in a few months and are sure you can pay off the purchase quickly, it may be cheaper and cleaner to explore a short personal loan or to plan for a one-time payment instead of stretching the cost through EMIs.
How EMIs affect your credit score and borrowing capacity
Card EMIs are not bad for your credit profile by themselves. Regular, on-time payments are recorded as positive behaviour. The hidden issue is utilisation. Since a large portion of your credit limit stays blocked for months, your utilisation ratio can remain high, especially if you use the same card for everyday spends. A consistently high ratio can drag your credit score down over time.
If you already have multiple EMIs running across different cards, adding yet another one increases the risk of missing a payment. One slip shows up as a delinquency and can hurt your future loan terms much more than the original purchase was worth.
When converting to EMI makes genuine sense
Used thoughtfully, card EMIs are a useful tool. They work best for unavoidable big spends where you do not want to dip heavily into emergency savings, and where the EMI interest is clearly lower than revolving credit. A genuinely zero-cost offer, where the all-in cost equals or beats the upfront discounted price, is also worth considering.
What EMIs should not become is an excuse for impulse buying or lifestyle inflation. Turning every restaurant bill, gadget or shopping cart into EMIs may feel painless month to month, but it quietly locks up your limit and clutters your finances.
If you treat each conversion like a loan decision rather than a routine default, the pattern becomes simpler. Check the rate, check the total cost, ask about fees, understand the impact on your credit limit and only then say yes. That small pause before you tap “convert to EMI” is often the difference between smart convenience and costly debt.
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