Buying on EMI:
When people need quick funds, personal loans and credit card EMIs are common choices. Both options allow for splitting larger expenses into manageable payments. However, each has its pros and cons, especially when it comes to long-term financial health. Here’s a breakdown to help you decide which is the better option for you.
A personal loan is an unsecured loan that can be obtained from banks, NBFCs, or fintech companies. It is paid back in fixed monthly instalments over a set period, typically ranging from six months to five years. Personal loans generally come with lower interest rates than credit card EMIs, making them a more cost-effective choice for larger, planned expenses like home renovations, education, or medical bills.
Because personal loans are not tied to your credit card limit, they also tend to offer higher borrowing limits, based on your income and creditworthiness. The longer repayment period allows for smaller monthly payments, which can ease the financial burden.
Credit card EMIs allow you to convert high-value purchases, such as gadgets or appliances, into fixed monthly payments. While some retailers offer no-cost EMI options, most standard credit card EMIs come with high-interest rates. They’re a better option for short-term needs, but the interest can quickly add up if you miss a payment or carry a revolving balance.
Credit cards may seem convenient, but their high interest and penalties for missed payments can lead to escalating debt, making them a less ideal choice for long-term borrowing.
In most cases, personal loans are more economical than credit card EMIs. Here’s why:
1. Lower Interest Rates: Even though personal loans are unsecured, their interest rates are usually lower than those of credit card EMIs.
2. Longer Repayment Period: Personal loans offer more time to repay, which makes managing monthly payments easier.
3. Higher Borrowing Limits: You can borrow more with a personal loan compared to your credit card limit.
4. Better Impact on Credit Score: Timely repayment of personal loans boosts your credit score, whereas missed credit card payments can harm it.
Using Credit with Caution
Financial experts, like Animesh Hardia from 1 Finance, caution against stretching your budget just to access EMI options. While using credit for planned expenses like a laptop or phone can be helpful, relying on EMIs for impulsive purchases can be a financial red flag. Similarly, high-interest personal loans should be avoided unless absolutely necessary.
Credit Card EMIs: Best for short-term needs like electronics or appliances, where you can repay quickly.
Personal Loans: Ideal for larger, planned expenses like weddings, home renovations, or education.
Before deciding always compare interest rates, repayment terms and any hidden fees. Misusing credit options can lead to financial stress, so it’s important to align borrowing decisions with a sound financial plan.
Also Read: Impact of Closing Credit Card on Your Credit Score
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