EMI on Credit Card

Credit

Credit card EMI converts large purchases into monthly instalments with an interest rate of 12-24% per annum (lower than revolving credit card interest of 36-42%). Two types: No-Cost EMI (merchant bears the interest) and Regular EMI (you pay interest).

In detail

No-Cost EMI (NCEMI):nMerchant marks up product price or pays the interest to bank on your behalfnYou see "0% EMI" -- but the product may have no discount that regular buyers getnActually: you forego the 2-5% instant cashback that debit card buyers getnnRegular EMI:nInterest of 12-24% per annum (lower than 36-42% revolving credit)nProcessing fee: 1-2% of loan amountnnWhen EMI makes sense: genuinely cannot afford full payment but need the item. Electronics, appliances, medical bills.nWhen EMI does NOT make sense: converting discretionary spending (vacation, phone upgrade) to EMI just because it feels affordable monthly.

Formula

EMI interest cost = Loan x Rate / 12 x (1+r)^n / ((1+r)^n - 1) - PrincipalnEffective APR of 0% EMI = Effective discount opportunity cost

Real-life example

🇮🇳 India example

Priya buys Rs 60,000 laptop on 0% EMI for 6 months. "No cost" -- pays Rs 10,000/month. However: regular price with SBI debit card gets Rs 3,000 cashback = Rs 57,000 effective price. By taking 0% EMI: pays Rs 60,000 (no cashback). True cost: Rs 3,000 = 10% annualised on a 6-month Rs 60,000 "loan." Not completely free.

Frequently asked questions

Should I close my credit card EMI early? ▼

Check foreclosure charges first: most banks charge 2-3% foreclosure fee. If foreclosure fee > remaining interest: do not foreclose. If no foreclosure fee or small fee: foreclose if you have surplus cash (reduces credit utilisation ratio and frees up credit limit).