Are No Cost EMIs On Credit Cards Really Free? Here's Why You End Up Paying More
Charges linked to your Credit card EMI: Everyone generally knows that the outstanding amount of the credit card must be paid till the due date. If you do not repay completely, you may have to pay huge interest. Sometimes this interest can be up to 42 per cent per annum. Apart from this, sometimes you may have to pay a huge amount as late payment penalty. But if you have made a big purchase with a credit card and are finding it difficult to repay the entire amount by the due date, then one solution is to convert the entire payment into EMI. The interest charged on such EMI is less than the interest that has to be paid if the entire amount is not paid. But do you know that apart from the interest mentioned in the credit card EMI, there is also an extra cost of 18%!
‘No Cost EMI’ not without cost
Many times you also get an offer from the credit card company/retailer to convert the entire amount into ‘No Cost EMI’. People get very attracted by this. They think that ‘No Cost EMI’ means that you have to pay only as much money as you have purchased. Apart from this, there will be no extra charge. But generally this does not happen. Often ‘No Cost EMI’ also has a cost. If you are not aware of this facility when you decide to avail it, you may get a shock while paying the credit card EMI. Let us understand why this happens.
GST on credit card interest!
You should know that you may also have to pay Goods and Services Tax (GST) on the interest charged on credit card outstanding amount. In fact, many services and charges of financial institutions are included in the ambit of GST, the burden of which ultimately falls on the customers. It is necessary. Interest charged on credit cards is also included in this category, on which GST has to be paid at the rate of 18 percent. This GST is levied on the interest on credit card transactions. Obviously, if you convert the credit card expenditure into EMI, then when the bill comes, you will also get 18 per cent GST added on the interest. For example, if you are paying 20 per cent interest for EMI, then after adding 18 per cent GST on it, the total cost of interest will be 23.6 per cent.
Why GST on ‘No Cost EMI’?
In fact, even in case of no-cost EMI, it usually does not happen that the credit card company does not charge interest. Actually, the credit card issuing bank charges interest, but the retailer selling the goods offers you an amount equal to the interest charged during the entire tenure of the EMI as an instant discount. That's why it claims that this EMI has no cost to you. But the discount offered usually only includes the EMI interest and not the GST charged by the government on that interest! For example, if the credit card EMI interest is 20 per cent per annum, then you will have to pay 18 per cent GST on it, which will be equal to 3.6 per cent of the total EMI amount. That means you will have to pay this much cost even in no cost EMI. Apart from this, you may also have to pay some more money in the form of processing fee or any other charge. Therefore, if you are thinking of converting credit card purchase into EMI or No Cost EMI, then first calculate its cost by adding all these additional costs and only then take a decision.
