Are you a shopaholic and not only looking for the best deals on the market, but also want to make shopping light on your wallet? If so, EMI (Equated Monthly Installment) cards may be the perfect choice for you. Offered by banks and NBFCs (non-banking finance companies), these cards instantly convert your large purchases into EMIs. Here is a summary of how EMI cards work and their pros and cons.
What are the features of EMI cards and how do they work?
The card is intended for individuals who purchase high-quality consumer durables and electronic gadgets. Most EMI cards come with a pre-approved credit limit. These cards work as EMI conversion options offered by banks on their debit and credit cards. The only difference is that when you make purchases using the card, it mandatorily converts into EMIs, unlike the case of EMI conversion where the choice is up to the customer.
Some cards even come with pre-qualified shopping benefits and pre-approved consumer durable and two-wheeler loans. This allows you to use the EMI card to purchase your favorite items. However, the pre-qualified loans and shopping benefits depend on the customer profile. Once your purchase is converted into EMIs, you need to maintain sufficient amount in your bank account as the bank/NBFC will debit the installment amount every month on the specified date. Your EMI amount will be automatically 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 tenure of EMIs?
The eligibility for getting an EMI card is almost similar to credit cards and loans. The individual must be between 21 and 65 years old, have sufficient income and have a good credit score. Although income criteria vary, lenders generally require that salaried employees have a minimum income of ₹10,000 per month and self-employed persons must have an annual ITR (income tax return) of ₹6 lakh to avail the EMI card. The EMI’s term of office varies from three months to sixty months. Most EMIs fall in the six-month to twelve-month category. The term of office is determined at the time you purchase the product.
You will be required to provide proof of identity, address and income (Aadhaar card/voter identification/PAN card/driving licence, salary slips, latest bank statements and ITR). Since your EMIs are deducted every month, you will also need to produce a canceled check and a signed ECS (Electronic Clearing House) mandate.
What are the benefits of EMI cards?
EMI cards offer a host of benefits including zero down payments, gift cards, reward points, discounts and cashbacks on purchases. Some cards offer 2.5%-5% cashback on all online spend. But the benefits are limited to certain limits. EMI cards, like credit cards, also offer an interest-free period of up to 50 days on purchases.
The biggest benefit, however, is breaking down large purchases into manageable monthly payments. The card also allows you to buy your favorite product directly from the points of sale and distributors of leading brands.
What are the disadvantages of these cards?
Some lenders market these cards as ‘no cost EMIs’ or ‘zero cost EMIs’. This means that if you buy a product for ₹12000 and avail ‘no-cost EMI’ for six months, then your monthly outgo will be only ₹2000. Normally this means that no interest or additional costs will be charged. But in most cases it doesn’t work that way. Moreover, the RBI (Reserve Bank of India) banned ‘no-cost EMIs’ in 2013, stating that lenders hide the interest element in the form of processing charges and pass it on to customers.
Please note that lenders charge a minimum interest rate of 10% per year on such purchases. They also charge processing fees, facility fees, and documentation fees, which increase your purchasing costs. You are not allowed to purchase anything using an EMI card if you are unable to repay the installments on time. So, it is better if you do a cost-benefit analysis before deciding to make purchases using an EMI card.
Allirajan M is a journalist with more than twenty years of experience. He has worked with several leading media organizations in the country and has been writing about mutual funds for almost sixteen years.
