EMI Exposed: The Pros and Cons of Buying Now, Paying Later!

Credit cards and easy EMI options seem too attractive to ignore. They allow you to own a particular product or service at the moment and provide flexibility on the payments that most of you are already aware of. 

 

Today we are revealing some of the biggest pros and cons of EMI schemes that you may not be aware of. This information will help you to make better decisions and avoid potential pitfalls in the EMI world. Let’s understand it in depth by getting familiar with some basic concepts! 

 

What is meant by EMI?

EMI stands for Equated Monthly Installment. It's a fixed payment amount made by a borrower to a lender at a specified date each calendar month. EMIs are used to pay off both interest and principal every month so that over a specified number of years, the loan is fully repaid. 

 

They are common in loans such as home loans, car loans, personal loans, etc. The EMI amount remains constant throughout the loan tenure, however, the proportion of the principal and interest components may vary over time, with the interest component decreasing and the principal component increasing as the loan is paid off.

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What is a Credit Card?

Credit cards are financial instruments that allow users to borrow money from a financial institution up to a certain predefined limit to make purchases or withdraw cash. They provide a convenient and flexible way to pay for goods and services without carrying physical cash. Here are the main points:

 

Borrowing Limit: You can spend up to a certain amount set by the bank, called the credit limit.

Revolving Credit: As you pay back what you've borrowed, you can use the card again, like a never-ending loan.

Interest: If you don't pay back the full amount you've spent by the due date, the bank charges you extra money, called interest.

Minimum Payments: You have to pay a small amount each month, but it's better to pay off the full amount to avoid extra charges.

Fees: Sometimes, there are extra charges like annual fees or late payment fees.

Perks: Some cards give you rewards, like cashback or points, for using them. They also offer benefits like travel insurance or discounts.

Security: Credit cards have safety features to protect your money, like chips and fraud monitoring.

 

In short, credit cards let you buy things now and pay for them later, but it's important to use them wisely to avoid extra costs.

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Pros of using credit cards

Credit cards offer several advantages and disadvantages, depending on how they're used. Here's a breakdown:

 

1. Convenience: Credit cards provide a convenient way to make purchases, both in-store and online, without the need to carry large amounts of cash. They offer quick and easy transactions, making shopping more efficient.

2. Emergency Funds: Credit cards can serve as a financial safety net during emergencies when immediate funds are needed. They provide instant access to credit, which can be invaluable in unexpected situations.

3. Build Credit History: Responsible use of credit cards can help individuals build a positive credit history. Timely payments and low credit utilization demonstrate financial responsibility and can improve credit scores over time, making it easier to qualify for loans and mortgages in the future.

4. Rewards and Benefits: Many credit cards offer rewards programs, such as cashback, points, or travel miles, for every purchase made. Cardholders can benefit from these rewards by earning incentives for their spending.

5. Consumer Protections: Credit cards often come with built-in consumer protections, such as fraud protection, purchase protection, and extended warranties. These features offer added security and peace of mind to cardholders.

Cons of using credit cards:

1. Interest Charges: One of the biggest drawbacks of credit cards is the high interest rates charged on unpaid balances. If the full amount isn't paid by the due date, interest accrues on the remaining balance, leading to additional costs over time.

2. Debt Accumulation: Easy access to credit can tempt individuals to overspend beyond their means, leading to debt accumulation. Carrying a balance on a credit card can result in long-term financial strain and difficulty in paying off debts.

3. Fees: Credit cards may come with various fees, including annual fees, late payment fees, over-limit fees, and foreign transaction fees. These fees can add up and increase the overall cost of using credit cards.

4. Impact on Credit Score: Mismanagement of credit cards, such as missing payments or maxing out credit limits, can have a negative impact on credit scores. A poor credit score can limit access to future credit and may result in higher interest rates on loans.

5. Security Risks: While credit cards offer security features to protect against fraud, they are still susceptible to unauthorized transactions and identity theft. Cardholders need to take precautions to safeguard their card information and monitor their accounts regularly for any suspicious activity.

 

Conclusion

Overall, credit cards can be valuable financial tools when used responsibly, but it's essential for individuals to understand the potential risks and benefits and to manage their credit card usage wisely. 

Have you ever used credit cards or other EMI options? 

Let us know in the comments! 

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