Credit Card EMI vs. Personal Loan: Which is Better for Big Expenses?

Credit card EMIs allow you to convert high-value credit card purchases into smaller monthly instalments. Instead of paying the full amount upfront, you can opt for EMIs that are deducted from your monthly credit limit over a tenure of 3 to 24 months. Some banks offer EMI conversion for transactions as low as ₹1,500, though interest may apply based on their policies.

Benefits and Drawbacks of Credit Card EMIs

Credit card EMIs make managing expenses easier by eliminating the hassle of extra paperwork. Many banks offer instant approvals, often with just one click away on your banking app or website. Some banks offer no-cost or low-cost EMIs when you shop with their partner brands, making your purchase more affordable. Flexible tenure options can help you manage small to medium expenses without upsetting your budget.

However, interest rates, especially for low-cost EMIs, typically range from 12% to 24%, making this a costlier option. Since the EMI is tied to the credit limit, your available credit may be lower compared to a personal loan. Some banks may also charge prepayment fees if you close your loan early, further increasing your borrowing cost.

What is a Personal Loan?

Personal loans are unsecured loans that can be used for various financial needs like home renovations, weddings, education, or business expenses. Their interest rates typically range from 10% to 24%, depending on the borrower’s credit profile. Banks and NBFCs offer personal loans of up to ₹55 lakh, with repayment tenures ranging from 6 to 96 months.

Benefits and Drawbacks of Personal Loans

If your purchase exceeds your credit limit, a personal loan may be a better alternative. With interest rates typically ranging from 10% to 31% per year, it may be more cost-effective than a credit card EMI. Repayment tenures of up to 96 months allow for smaller, more manageable monthly payments. Since the loan is separate from your credit card, it won’t impact your credit limit, giving you the flexibility to use your card for other expenses.

Unlike credit card EMIs, approval isn’t instant—lenders need to assess your eligibility and process documentation, which can take a few days. A processing fee of 1% to 3% of the loan amount adds to your borrowing cost. If you decide to repay the loan early, some lenders may charge a prepayment fee of 2% to 5%, reducing your flexibility.

Which One Should You Choose?

Deciding between a credit card EMI and a personal loan depends on your needs. If you want quick, hassle-free funds and your purchase qualifies for a no-cost EMI, go for a credit card EMI. But, if you need a larger amount, lower interest rates, or a longer repayment tenure, a personal loan may be a better option. Credit card EMIs, with a shorter repayment tenure, work better for smaller-value purchases. For bigger expenses that call for more financial flexibility, personal loans make more sense.

Regardless of the option you choose, ensure you pay your EMIs on time to maintain a good credit score.