When 0% EMI scheme was introduced, there was a growth in the spending habits of consumers because several people could acquire things that they didn't have the money for. The unhealthy spending habits of people affected the aggregate savings in the country. Banks, businesses and merchants made lots of money. It was a time of great affluence of credit. That's when the RBI banned the 0% EMI schemes even though the consumers were pinned to the idea of flexible payment options and easy credit.
After the 0% EMI scheme was banned, the banks began tying up with enterprises that provide high-value services which increase the credit-card business. EMI schemes which have cash-back were on the rise, a replacement that the young consumers found very beneficial. EMI at Point of Sale (PoS) is a trend that doesn't seem to be going away anytime soon. It enables consumers to generate high-value goods or services without paying the entire amount at the time of purchase. These days, even educational institutes accept credit card payments. Insurance, hotels, and the education sector have been quick to adopt this means of payment.
This trend has shifted the consumption pattern of people. Under 0% EMI schemes, the consumers in the country had started consuming without any consequences and affected the balance of savings in the country. After the 0% EMI trend was banned, the banks have also become more cautious about providing credit to their customers. These days, rigorous checks on credit history are done before giving handing people with credit. The stringent checks done by the banks has also reduced the number of defaulters. It was an essential step since more and more people have started opting for EMI facility on their purchases.
Disadvantages of EMI at PoS through credit card
- A large number of banks can't offer EMI for credit card purchases since EMI purchases inflate the capacity of a customer to purchase something. When the customer's repayment ability is inflated, there are increased chances of bad debt. So you must verify with your bank whether your credit card has the option of EMI payment and discuss the terms and conditions linked with that.
- If you choose the option of EMI through credit card, then it affects the credit limit of your card. As you repay the debt, the credit limit increases again. Availing the EMI option for a credit card at PoS could also be beneficial in many ways. But if the debt isn't cleared on time, a hefty penalty is imposed in the long run.
- Additionally, if you choose to get an educational loan instead of paying your fees, you may not be able to take advantage of tax deductions. Also, the repayment of the educational loan is much more spread out than the tenure of an EMI credit card payment.
- If you opt for EMI over a purchase, then you can lose out on exciting reward points on the credit card. If you close the credit card, then you may incur penalties.
- If you default an EMI payment over your credit card, then you will be required to pay a higher interest rate on the EMI over the rest of the tenure.
- If you pay your tuition fees through educational loan and not through a credit card, your loan will get approved upfront, and it is a relatively more straightforward method of payment compared to the credit card.
Advantages of Making EMI Payments at Point of Sale Through Credit Card
- It increases the purchasing power of the borrower. The credit card user can pay a portion of the amount instead of paying a lump sum amount while purchasing.
- Customers can avail offers like cash-backs and discounts.
- If you pay the EMIs on time, then your credit score can improve as well.
- If you are an existing customer with the bank with a good credit score, then you can also negotiate over the processing fees and prepayment penalty charges while applying for the EMI for credit payment at the PoS.