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When you have an outstanding balance on your Credit Card, you can convert it into equated monthly instalments (EMIs). This option allows you to manage large purchases by spreading the cost over several months, making it more manageable. However, many cardholders may not realise how interest rates can affect these payments, increasing the total cost of the purchase. The interest rate directly influences both your monthly outflow and the total amount you end up paying overtime.
In this article, we will explore the key factors that influence Credit Card EMI payments and how you can manage them more effectively.
What Is a Credit Card EMI?
A Credit Card EMI (Equated Monthly Instalment) allows you to break down a large purchase into smaller monthly payments. Instead of paying the full amount upfront, you can convert the amount into EMIs, which will include an interest charge. This option makes it easier to manage big-ticket purchases without depleting your savings in one go. The size of your EMI depends on the amount being financed, the interest rate applied, and the repayment term you select.
The Role of Interest Rates in Credit Card EMIs
Interest rates play a significant role in determining the overall cost of your Credit Card EMI. When you choose to convert a purchase into EMIs, the interest rate applied to your outstanding balance is added to each instalment, making your monthly repayment higher than just dividing the principal by the number of months.
For instance, if you convert a ₹30,000 purchase into a 6-month EMI at an interest rate of 15%, the total repayment will be higher than the original ₹30,000 due to the interest charged on the outstanding balance. As a res… Read More
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