What is Credit Card EMI vs Personal Loan?
When you need to finance a purchase or expense, two popular options are Credit Card EMI (converting purchases into monthly installments) and Personal Loan (borrowing a lump sum from a bank). Both serve the same purpose—spreading payments over time—but differ significantly in cost, flexibility, and approval process.
Real Example: Rahul wants to buy an iPhone worth ₹1,20,000. His credit card offers EMI at 15% for 12 months. A personal loan from his bank is available at 11% for the same tenure. Let's calculate:
- Credit Card: EMI = ₹10,831/month, Total = ₹1,29,972 + ₹589 fee = ₹1,30,561
- Personal Loan: EMI = ₹10,621/month, Total = ₹1,27,452 + ₹2,832 fee = ₹1,30,284
Despite higher processing fee, personal loan saves ₹277 due to lower interest. But for smaller amounts, credit card EMI wins due to flat processing fee.
How Does This Calculator Work?
The calculator computes the true cost of both options by considering:
- EMI: Using reducing balance method (same as banks)
- Total Interest: Total payments minus principal
- Processing Fee: Flat fee for CC, percentage for PL
- GST: 18% on processing fee (mandatory)
It then compares total outflow (Principal + Interest + Fees) to determine which option costs less.
Formula Used
EMI = P × r × (1+r)^n / [(1+r)^n - 1]
- P: Principal (loan/purchase amount)
- r: Monthly interest rate (annual rate ÷ 12 ÷ 100)
- n: Number of monthly installments
Total Cost = (EMI × n) + Processing Fee + (18% GST on Fee)
Credit Card EMI vs Personal Loan: Key Differences
| Feature | Credit Card EMI | Personal Loan |
|---|---|---|
| Interest Rate | 13-24% | 10-18% (Lower) |
| Processing Fee | ₹199-999 flat | 1-3% of amount |
| Tenure | 3-24 months | 12-60 months |
| Approval Time | Instant at checkout | 1-7 days |
| Max Amount | Card limit | Up to ₹40 Lakhs |
| Credit Limit Impact | Blocks card limit | No impact |
| Foreclosure | 3% of outstanding | 2-5% or NIL after 6 EMIs |
| Documents | None (instant) | ID, Income proof |
The Truth About "No Cost EMI"
No Cost EMI sounds attractive but has hidden costs that make it not truly "free":
How No Cost EMI Works
The merchant offers an upfront discount equal to the interest amount. If a phone costs ₹50,000 with ₹2,000 interest over 6 EMIs, the "principal" becomes ₹48,000, and you pay ₹8,000 × 6 = ₹48,000. The product price shown is already inflated.
Hidden Costs You Still Pay
- Processing Fee + GST: ₹199-999 + 18% GST (not covered by merchant)
- GST on Interest: 18% GST on the "waived" interest is charged to you
- Lost Discounts: Upfront payment often gets better discounts than EMI
- Lost Reward Points: Most cards don't give rewards on EMI transactions
- Billing Cycle Interest: Extra 20-25 days of interest due to cycle mismatch
RBI Clarification (2013): "Zero percent EMI schemes always have hidden costs. The interest element is camouflaged and passed on to customer in form of processing fee or inflated product price."
When to Choose Each Option
Choose Credit Card EMI When:
- Purchase amount is less than ₹50,000
- You need instant approval at checkout
- Tenure required is 12 months or less
- You're availing genuine No Cost EMI on sale items
- You have sufficient credit limit to spare
Choose Personal Loan When:
- Amount exceeds ₹1 Lakh
- You need longer tenure (24-60 months)
- You want lower interest rate (10-15%)
- You don't want to block credit card limit
- For medical emergencies, weddings, home renovation
Frequently Asked Questions (FAQs)
What is the typical credit card EMI interest rate in India?
Credit card EMI interest rates in India typically range from 13% to 24% per annum depending on the bank and card type. HDFC, ICICI, SBI Cards usually charge 13-18% for EMI conversion. This is significantly lower than revolving credit (36-42%) but often higher than personal loans (10-15%).
Is No Cost EMI really free?
No, No Cost EMI has hidden costs: processing fee (₹199-999 + 18% GST), GST on interest amount, lost upfront discounts, and lost credit card reward points. RBI clarified in 2013 that zero percent interest schemes always recover costs through other means. Always compare the final No Cost EMI price with upfront payment price.
When should I choose Personal Loan over Credit Card EMI?
Choose Personal Loan when: (1) Loan amount exceeds ₹1 Lakh, (2) You need tenure longer than 24 months, (3) You want lower interest rate (10-15% vs 13-24%), (4) You don't want to block credit card limit. Personal loans are ideal for larger expenses like weddings, medical emergencies, or home renovation.
What are the processing fees for Credit Card EMI and Personal Loan?
Credit Card EMI processing fee is typically ₹199-999 flat plus 18% GST. Personal Loan processing fee is usually 1-3% of loan amount (minimum ₹1,000-2,500). For amounts below ₹50,000, credit card EMI has lower fees. Above ₹2 Lakhs, personal loan fees may be capped at certain maximum amounts.
Does Credit Card EMI affect my credit score?
Yes, Credit Card EMI affects your credit score: (1) It increases credit utilization ratio—if your limit is ₹2L and EMI blocks ₹80K, utilization becomes 40%+ which hurts score, (2) EMI is reported as a loan to credit bureaus. Missed EMI payments severely impact score. Personal loans also affect score but don't block existing card limits.