Breaking Up Your Card Purchases

Amit is looking to buy a home theatre system of about Rs 20,000 on his credit card. But there is a slight problem; if he uses his card for the buy, he may not be able to make the payment by the due date of the first month and will automatically fall into the interest cycle. However, Amit finds that there is a 6-month EMI facility being offered at zero per cent interest on his card. Now he is wondering whether this is actually beneficial for him. Should he go for it?

Analysis

Different credit card-issuing banks have different offers on their cards. First and foremost thing credit card users need to do is carefully evaluate each offer. Before signing up for any special scheme, they should peruse the fine print as it determines the actual benefits.

Banks come up with special schemes to encourage people to make big ticket purchases. One such scheme is a 6- or 12-month EMI facility which is offered against expenses made for a specific product or above a certain limit. In case of Amit, he has to look at the exact position to know whether the 6-month EMI facility offered to him is good enough.

The first thing to check is that the total amount that he will be paying as EMI is actually interest free. This means comparing the total amount that has to be paid before the use of the EMI and the amount that will be paid when this facility is used. Amit will have to look at the total EMI amount and if the total payment comes exactly to Rs 20,000. If both amounts are same then there is no interest cost and the offering is interest free as it is claimed. If there is an interest cost, then the total amount will actually go higher.

Conditions

To check for the actual benefit, it is important to know the manner in which the entire amount is to be converted to EMIs. Is the facility available for the entire amount or will only a part of the total payment be converted to EMIs? The larger the amount that is considered for the EMI facility the better it is for the card user because he/she can ensure that the payment is actually spread out over the entire period. For repayments some banks have only a 6-month EMI facility, while in other cases they also offer a 12-month EMI. In terms of operation, convenience for the individual is important, thus Amit would have to check whether the 6-month EMI is suitable in terms of payment.

Guidance

One has to be careful about the entire situation as there can be times when the interest-free EMI is not actually so and would actually involve a higher payment collected under some other head. This is nothing but a cost for you and so has to be avoided

On the other hand when no interest is levied at all, the EMI facility can be beneficial, helping in spreading out the payment. In several cases credit card companies induce people to buy products using the 6- or 12-month EMI route and many fall for such a trick. If it is an additional expense for Amit then it is not something that he should go for because he will end up spending when he should not. But if there is no change in the cost and as he has already made up his mind to purchase the system he can use this facility, which will be an additional feature on his entire offering.