Are you converting your credit card purchases into EMIs? Pay close attention to these charges; banks often don't disclose them clearly..

Have you ever seen an EMI option while buying a mobile phone, TV, or flight ticket and clicked on it without much thought? At that moment, all you think is that the EMI is small and manageable.

But the real story unfolds after the EMI starts. Looking at the statement, you wonder how something that cost 30,000 rupees has gradually increased to over 35,000 rupees. This is where you realize that credit card EMIs are not as straightforward as they seem.

The first shock when setting up an EMI is the processing fee.

When you set up an EMI with your credit card, the bank first deducts a processing fee. This fee varies from bank to bank. Typically, a processing charge of 1 percent to 3 percent is applied. In some cases, a fixed amount is charged as a processing fee. If you've set up an EMI of 50,000 rupees, up to 1500 rupees can be deducted just as a processing fee. Sometimes this amount is added to the EMI, so it's not immediately visible.

Interest-free EMIs are not entirely free.
Many places advertise "No Cost EMI." It sounds like there will be no interest charged. But the reality is a little different. In a No Cost EMI:

The interest may already be included in the product price.
It might be offset in the name of a discount.
The total payment may still be higher.

This means that in many cases, you don't see the interest directly, but you still end up paying more.

GST is a charge that is often overlooked.
This charge silently makes your EMI more expensive. GST is levied on both the interest and the processing fee on credit card EMIs. This means 18 percent GST on the interest and 18 percent GST on the processing fee. If your EMI has an interest of 1000 rupees every month, you will have to pay an additional 180 rupees as GST.

Foreclosure charges if you close the EMI early.
Many people think that they will close the EMI early when they have the money. But the bank charges a fee here, too. Foreclosure charges range from 2 percent to 5 percent of the outstanding amount, plus GST. This means that even paying off a loan early isn't necessarily cheaper.

Late payments make EMIs even more burdensome.
If you don't pay your EMI or minimum due amount on time in any given month, the losses double. Late payments incur late fees, higher interest rates, and negatively impact your credit score. A small mistake can haunt you for months.

How to understand the total cost before choosing an EMI
Before choosing an EMI, don't just look at the monthly installment. Ask yourself these questions:

What will the total payment be?
How much interest and GST will be added?
What are the charges if I close the loan early?
If the answers to these questions are not clear, it's better to pause before taking out an EMI.

When can a Credit Card EMI be the right option?
EMIs aren't always bad. If used correctly, they can be helpful. An EMI is suitable when:

There's an emergency expense
Your income is stable
The EMI fits within your budget
But don't take out an EMI simply because you don't have to pay the money up front.

Where do people make the biggest mistake?
The biggest mistake people make is assuming that EMIs are cheap. A small EMI amount makes it seem like the expense is low, while the total amount paid is significantly higher. This is why it's crucial to understand all the charges before taking out an EMI.

Conclusion
A Credit Card EMI is a convenience, but if used without understanding the terms, this convenience becomes a burden. Processing fees, interest, GST, foreclosure charges, and late fees all add up to increase the cost. Calculating the total cost before taking out an EMI is the wisest step. Only by understanding the hidden charges behind seemingly easy EMIs can you make the right decision.

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.