How does EMI on credit card work ?

Are you one of those shopalcohlic people who buy goodies without having any money to pay for the product and subsequently use the EMI on credit card option to pay over a period of time without understanding how does EMI on credit card work ? If yes, then the next few months are going to render you a poor man – that is because with so many festivities coming up, consumers will be enticed to empty their wallets and you might be making the credit card payments by EMIs if you are short on cash.

Payment of credit cards can be done in two ways – one is pay off the entire principal without paying any interest and the other is to pay a small amount now and carry the rest of the principal to the future by paying interest.

The third option is converting the entire amount into an equated monthly installment for credit cards – much like you pay each month in a home loan. However, you need to first understand how does EMI on credit card work before committing to such a liability.

Let us first try to understand the impact of converting a payment into such EMI purchases on credit cards. If you think the credit card company is allowing you to pay in installments without any extra charge, you might be a bit shocked. Read on to find out.

How does EMI on credit card work

Credit card companies make money by earning interest on late payments that you make. If you are paying off your credit card bills within the due dates, then essentially you are not contributing to their profits. You are not in their good books!

To lure shoppers to take up a repay-in-future-and-pay-interest option, the EMI on credit cards option works great to their benefit. It also comes as a temporary respite for the buyer as he might be facing a cash crunch at the time of the purchase.

EMI on credit cards work much like a home loan or a personal loan – you pay the principal and interest each month and clear off your debt over a period of time. Put it simply, that is how EMIs on credit cards work.

Almost all the credit card companies offer two variants of the EMIs – one is a free zero interest rate EMI and the other is a low interest rate EMI.  The word low is used here as it is lower than the late payment interest rates that you would have paid normally in case of the non EMI option.

So if you look at it, the bank is riding on your inability to pay now to be converted into future dated payments with a slightly lower interest rate. If the credit card companies do not allow for this, then you might actually default and not pay them any interest, leave alone the principal. So it works good for them as well.

The zero interest rate EMI is a no brainer – if you purchased something of say Rs 24,000, then this gets converted into an EMI of Rs 2,000 each month. You do not have to pay anything extra here and the credit card company does not earn anything out of you. Hence, such offers are free and far between.

How does EMI on credit card work

The low interest rate EMI option calls for interest rate in the range of 1.25%-1.99% per month which in most cases is lower than the normal rate charged on a credit card late payment.

What you must note is that banks will levy processing fees before you can use any of these options. Also, if you want to prepay, then you might end up paying a pre payment charge as well.

Talking about processing fees, you must note that this is bundled with the principal and service tax is levied on the total amount and that gets converted into EMIs – that is awful – paying EMIs on processing fee + service tax!!

Once you take the EMI route, your credit card limit is automatically reduced by the amount of principal outstanding. As and when you keep paying the EMI, the debt reduces. But till the time you bring this down to zero, be aware of the fact that you cannot shop upto the allowed original credit card limit any more.

Another thing to take a note is that once you convert into an EMI, many banks will ask you to pay this EMI as a minimum payment due each month. So while the EMI option was meant to put the consumer at ease with small payments over a period of time, that payment now has a bloated minimum amount ! Seriously crazy.

Look at this note from ICCI Bank -

We wish to inform you that with effect from September 24, 2012, the calculation method for Minimum Amount Due (MAD) payable on your ICICI Bank EMI Credit Card has been revised, MAD shall now be 5% of the outstanding amount.

In case of any repayment through EMI, the EMI amount due during the statement period will be added to the MAD.

Other points to be aware of

This facility might not be always available round the year.

Also, purchases from select merchants might only qualify for such a scheme.

If you think you are going to default on payment of your credit card dues, then it is wiser to opt for paying via the EMIs on credit card. A default will not look good on your credit score and will also come at a higher rate of interest.

Converting into an EMI option is also valid on purchases above a limit. For example, ICICI Bank will convert minimum purchases of Rs 3000 into EMIs of 3,6,9 or 12 months. And not just that, if you want to go via net banking for EMI conversion, then purchases greater than Rs 5000 can only qualify.

Last Word on how does EMI on credit card work

If you are caught in the rut of paying via EMIs on credit cards then you must do some serious introspection on how you are conducting your lifestyle. Consumers fall for such traps when they shop for consumer durables like laptops, TVs and other gizmos that might not really be mandatory for them to buy. One needs to understand how to control lifestyle expenses and differentiate between needs and wants.

Over to you now – have you been bitten by this bug already and did you learn anything new on how does EMI on credit card work ?


  1. Jatin Kacha says:

    Nice article,

    Two important aspect very well mentioned. That is impact on “minimum due amount” for every billing cycle & “reduce in your credit limit”.
    Once must have to understand pros & cons before opting for EMI options.

    • TheWealthWisher says:

      Yeah Jatin, you are very right. Most of the people never understand these 2 points. Thanks for pointing them out again.

  2. Very informative and detailed article. I think we should pay the entire amount before due date and do not opt for EMI. We should make use of the bill-cycle and shop accordingly. If your bill cycle is 5th every month then we should start buying on 6th. That way you get enough time. Why buy when you cannot pay……

  3. hi,
    I booked a ticket of about 19412 INR(including some charges which were above 1000 INR ‘coz I chose EMI of 6 months) using ICICI platinum chip credit card. My credit limit is 20000 INR. My EMIs are about 3500 INR. It seems that except the next due date(by which, of course, I will pay the first EMI), I can pay the rest of the amount by the next dyue date. But I need some suggestions whether I can do it or not? Please I need some advice about the pros and cons related to this buying of mine. Am I in some sort of trouble? :(

    • TheWealthWisher says:

      What is not clear is whether you are talking specifically about your EMIs here or any dues other than EMIs ? If it is EMIs, then you have to pay by the date. You can pay a minimum due on your credit card and carry over the rest but then you will need to pay charges. Long story short – clear all your credit card dues.

  4. Its a very informative article… good work. But i am still confused.
    I have a HDFC emv platinum credit card. My credit limit is 30k. I already have a product of 8.5k on emi of 12 months. So suppose my available credit limit is 23k, then can i make another purchase of 36k( a laptop ) on 6 months emi (6k /month) ?. Actually I failed in doing so, and i regret now on that 8.5k purchase… :( Or any alternative i can find??
    Thank you

    • You answered your own question.
      So suppose my available credit limit is 23k, then can i make another purchase of 36k( a laptop ) on 6 months emi (6k /month) ?.

      Your limit is 30k (available balance is 23k). You cant buy anything more than the available limit.

  5. abhijeet says:

    i recently swiped ma hdfc credit card for buying laptop of 42,ooo in a 6 months e.m.i option…,
    as mentoined by the merchant the interest rate and processing fee was zero %.
    so now what will be my first month and next emi’s worth…??
    also if i pay all the 6 emi’s on specified time ….do i have to pay more than 42k…if yes then how much….?
    i am 1st time creditcard user
    kindly suggest …
    thanks in advance

  6. EMI on credit cards is juts a marketing strategy and sounds nice when they advertise 0% down payment, 0% interest and blah blah blah !!!
    The key message here is your available credit limit is reduced by the total amount of purchase which is completely misguiding and unethical as they make it sound as if you owe only the minimum monthly EMI amount right away when you are signing up for such a scheme. Recently I bought a smartphone for INR 25000 and was about to make the mistake of opting for EMI scheme. Then they told me that my available credit will be reduced by exact the same INR 25000 and have to pay a processing fees of 3.5% to ICICI bank. I have no clue why would someone opt in for such madness. I denied the scheme and paid in full. I am better off paying my credit card dues than this stupid scheme.

  7. I want to pay my cc bill but the bank is not giving me installment option to pay off the bill.Please suggest Wat can b done. Hdfc is the chor bank I have ever worked wit.

  8. I want to buy a smartphone that costs 30,000rs . But my HDFC credit card limit is 20,000. And i am getting this by 6 montha EMI, That makes 5,000 per month. Can i buy it through this credit card limited to 20,000rs???

    • i think you can, but u ll be charged for going over your credit limit , i think it’s around 3%

      talk to your bank officials about or call the customer care

  9. Hi,

    I need a clarity on credit card with emi (non zero interest rate)

    If I purchase a product worth 10000 and go for emi (say 6 months). How much I’ve to pay every month.

    Assuming, 12% for 3 and 6 months
    13% for 9 and 12 months. (interest rate per annum right? )

    Please let me know how to calculate these monthly payments.

    What extra charges will be applicable (like processing fees, service tax)? How to include these while calculating monthly payments?

  10. Lakshman Rao says:

    Hallo replay all above questions if ur a don in credit card related issue
    R else have 5 times n sleep well..

  11. suppose in the first month i paid twice the EMI amount i.e instead of 5K i paid 10K together.
    and in the second month i dont have money.
    Will interest be charged for the 2nd month?

  12. Hello,

    I just got my first new ICICI Bank coral credit card as it is mentioned in my first statement my joining fee is 199.+24.60= 223.60 is it true? Because when I was reading through there website it states of 1000 + tax joining fee and one complementary tie worth of around 900/-
    I want to know what is correct above I am bit confused?

    As my credit limit is 30000 per month for now,
    if I buy a product worth of 16000 with full payment from credit card (without EMI) I want to be it should deduct from my saving account right at the moment I purchased (I dont know whether it is possible or not)?

    But please do let me clear this and Thank you for your detailed article really help us.

  13. somesh raghani says:

    i have icici bank credit card is limit 40000 and i want to purchase laptop on creditcard emi of 12 month laptop price is 27800 i want to know that the amount of laptop was full deducted or monthly deduct

  14. Yashwanth says:

    My credit limit in ICICI bank is 18000. If i buy a product of 18000 in 3 EMI’s and pay the 1st EMI of 6000. Would the credit limit be the same i.e., 18000 second month onwards.

  15. very well explained.
    you must have had a lot of trouble with credit cards I suppose :P.

  16. from where does the emi amount gets deducted? i mean, if i have a credit card from my salary account and each month i get salary, then emi should get deducted automatically from my salary balance? m i right?
    and WTF is a due date????

  17. Nikhil Kulkarni says:

    Thanks for explaining in details. My question is as follow.

    I am very much fond of iPhone 5S (white color). One trusted retailer have offer of 42k for the same. Due to some financial constraint, I will be able to pay upto 15k in cash.I am also not having credit card right now. How much in general interest credit card cos charges over mobile phones? Which credit card you will advise to opt? If I take a credit card, how should then I go for EMI? Will it be before payment of rest 27k or after? My assumption is like this. Say r= 2% per annum (even I am not aware of interest rate and how they charge it per annum or per month for credit card), I chose 12 months as p then on 27k amount, Interest will be 2*1*270= 540, sum will be 27540 and EMI will be 27540/12= 2292 rs?

  18. Greetings,
    I have a question.
    If I purchase something on EMI with Credit card for 6 months & I want to clear EMIs all at once at first EMI (off course by paying all at once in first month) then may it be possible?
    May this still cause my next month credit card minimum due to be at least the EMI amount??
    Please suggest.

  19. hello sir. my sbi credit card limit is rs.30000/-. i want to purchase a mobile worth rs.20000 through emi. weather the first emi amt 4000 only deducted or the whole 20000/- deducted ah?
    kindly clarify me

  20. My credit limit in ICICI card is 30000.I am planning to buy a macbook pro worth 70000 online through EMI. Is that possible?Please help.

  21. Hi.. I have done online shopping for 35000. I gonna convert it into EMI payment. But, Again i want to shop for 20000 since my credit limit is 60000. Whether i can shop further for 20k and convert tat also into EMI or till completing EMI’s for 35K , i cant shop or convert 2nd EMI for 20k ?? please advice on this

  22. Dhanavarsh Reddy says:

    Hello sir, I want to buy a product if Rs. 40,000 on EMI for 12 Months. But my credit card limit is only 25000. It is possible to buy a product over the credit card limit. Please help me

  23. Manikantan says:

    I have swiped my card with 40000 on various occasions on a particular statement period. And everything is on EMI. Will i have to pay the minimum amount due or the Total due amount before the due date so that i could enjoy interest free days if i swipe during the next statement period. My card limit is 50k. Hope i am clear with my question.
    Kindly suggest me.
    Thanks & regards

  24. PANKAJ KUMAR says:

    I have got my HDFC credit card my online bank account shows credit limit avilable is Rs-100000 if i buy something on emi then how they will deduct my amount on monthly basis?

  25. Atul Aditya says:

    I want to purchase a bike (worth Rs 65000), I have HDFC CC (with limit of Rs 50000)
    can I make the payment of Rs 50000 throw card?
    what will be EMI & interset rate? please suggest.

    Thanks & Regards,
    Atul Aditya

  26. yash kashyap says:

    Hello I am a new user of credit card and I want to know that if i purchase any mobile on Emi then full amount of mobile will taken by merchant or only Emi payment. Please give me ans

  27. I am a HDFC credit card holder for 6 years and I want to cancel as i have cleared all my dues. currently ZERO balance. While giving the credit cards these banks will offer and sit on our heads to get their targets completed, but while deactivating/cancellation of the card these bank people are very irresponsible and never provide proper information or service. Can any one suggest what will happen if I keep this card with out using and destroy it.

Speak Your Mind