Your loan EMI is typically paid through your bank savings account. At times when loan EMI is delayed, the bank may send you a link through which you can make the payments using different modes of payments. Some banks may not accept payments through credit cards, while others may allow this option. While this might seem convenient, it comes with its own set of advantages and disadvantages that borrowers need to consider carefully.
Most banks and financial institutions do not offer this facility due to the potential risks and complexities involved. However, if your credit card allows this option, then here are the key things you must keep in mind.
Advantages of Paying EMIs with a Credit Card * Immediate Payment Relief
One of the primary benefits of using a credit card to pay your loan EMIs is the ability to make payments on time, especially during financial crunches. This can help avoid late payment fees and penalties for missed or delayed EMI payments.
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* Reward Points and Cashback Offers
Many credit cards come with reward points, cashback, or other loyalty benefits on transactions. By paying your EMIs through a credit card, you could potentially earn rewards. However, it’s important to note that not all credit cards offer these perks for EMI payments, so it’s crucial to check your card’s terms and conditions.
What are the disadvantages? * High-Interest Rates
Credit cards usually have higher interest rates compared to personal or other types of loans. If you are unable to pay off the entire credit card balance before the due date, the interest charges can accumulate quickly, leading to a substantial increase in your overall debt. This could make the cost of borrowing significantly higher in the long run.
* Processing Fees and Additional Charges
Some banks and NBFCs may charge a processing fee for using a credit card to pay your EMIs. This fee can add to the cost of your loan repayment, reducing the financial benefit you might have hoped to gain from such a transaction. Additionally, there could be other hidden charges associated with this payment method. So, it’s important to read the fine print carefully.
* Impact on Credit Score
Using a credit card to pay EMIs can affect your credit utilisation ratio—the proportion of your available credit that you are using.
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