Vrunda Deshpande, 25, works for a human resource firm. Her job entails managing and designing salary packages for organisations. And after long weekdays she prefers spending the weekend shopping in malls. She is not a complete shopaholic but does like picking up stuff quite often, sometimes even if it is out of her budget.
No wonder her finances are often under duress because of the high credit card bills. Of course, she is stung by guilt pangs whenever she sees those bills. Her friends point at the high interest costs that make it worse. But there aren't cheaper options to fund her expenses.
There is good news for people like Vrunda. Banks are now issuing EMI facility in their credit cards where you can buy something and pay it through instalments. This can be especially useful in case of purchasing expensive goods like consumer durables or jewellery.
Banks like ICICI Bank have launched special EMI cards whereas HDFC Bank has easy EMI option for its credit card holders. In case of SBI and HDFC Bank, no documentation is required for such a facility, and every credit card holder is eligible for such a facility.
In case of ICICI Bank the eligibility criteria for the salaried is minimum salary requirement is Rs 120,000 per annum.
This EMI facility, in case of credit cards is a unique credit facility, where the customer's monthly amount due is fixed depending on the number of instalments that he has to pay.
The EMI amount due per month is inclusive of all charges like processing fee, interest costs etc. Assume you have made ten purchases through the credit card in one month and you convert two of them into EMI payments.
Then the other eight purchases will attract normal rates of interest (over 3 per cent per month) and these two EMI will attract a different interest rate (a flat rate of 12 per cent per annum, as in case of SBI). The tenure of such EMIs can vary from two months to 36 months.
However, there are no free lunches. ICICI Bank gives you two options. That is, you can have a card where you pay an annual fee, between Rs 1,000 and Rs 3,500, but there are no other charges.
On the other card, you are charged between 1.49 per cent and 1.99 per cent per month on reducing balance. In case of SBI credit cards, there is processing fee of 2 per cent on the purchase amount, subject to a minimum Rs 99 and a maximum of Rs 300.
The interest rate is 12 per cent flat per annum, applicable from the day of transaction. So, the customer gets zero-interest free days.
The minimum shopping amount has to be Rs 1,000 in case of ICICI Bank cards and Rs 1,500 in case of SBI. Generally, normal reward points are applicable for such transactions.
If the customer decides to prepay, he has to pay prepayment charges of Rs 199 every time a prepayment is made in case of ICICI Bank. In case of SBI, a cancellation charge of 3 per cent is levied on the outstanding principal amount. There are over-limit charges of 5 per cent, subject to minimum of Rs 500 and maximum Rs 600, if the customer exceeds the purchase limit on the card in case of ICICI Bank.
Compare the EMI option with a normal credit card interest rate, then the interest costs are definitely much lower. However, there are no interest-free periods in case you opt for the EMI facility.
Moreover, most credit card companies now offer cards with zero annual fees. There are surely pros and cons in these products, but if you are incurring large expenses, it makes sense to use this option, simply because the costs would be lower than rolling over on your normal credit card.
