Credit Card EMI vs Personal Loan: Which Costs Less For Festive Shopping?

The festive sale is here. The discount looks tempting, the product is on your wishlist, and then comes the big question: Should you put it on a credit card EMI or take a personal loan?

The answer is not as simple as choosing the option with the smaller monthly EMI. What matters is the total amount you will pay by the time the debt is cleared.

"Borrowers should not choose credit based on the size of the EMI alone. The decision should account for the total cost, repayment tenure, existing obligations and the purpose of the borrowing," Laksh Dua, Director & Co-Founder, WeCredit, told NDTV.

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Credit Card EMI Or Personal Loan?

For a smaller purchase that can be repaid over a short period, a credit card EMI can be convenient. There is usually no separate loan application, and eligible customers can convert a purchase into EMI at checkout or after the transaction.

A personal loan, on the other hand, may make more sense for a larger expense or a longer repayment period. The loan amount and tenure are fixed upfront. It also does not eat into the available limit on your credit card.

But convenience does not automatically mean lower cost. The interest rate on a personal loan can vary depending on the borrower's credit profile, lender and loan terms. A credit card EMI may also carry interest, conversion charges and taxes.

This is why the monthly EMI can be misleading.

The GST Difference Many Borrowers Miss

There is another cost that shoppers need to consider. For credit card EMIs, GST is charged on the interest component and on applicable processing or conversion fees. For a conventional personal loan, GST generally applies to processing and other service charges, rather than the interest component.

That difference can change the effective cost of borrowing. For example, consider a Rs 1 lakh purchase for 12 months.

An illustrative credit card EMI at 16 per cent per annum reducing could work out to around Rs 9,073 a month. The total interest would be about Rs 8,877.

If a 2 per cent processing or conversion fee plus GST is added, that would be around Rs 2,360. GST on the interest would add roughly Rs 1,598. The approximate total cost of credit would therefore be around Rs 12,835.

Now consider a Rs 1 lakh personal loan for the same 12 months at an illustrative 13 per cent reducing rate. The EMI would be around Rs 8,932 and total interest about Rs 7,181.

With a 1.5 per cent processing fee plus GST, the approximate processing cost would be Rs 1,770. The total cost of credit would be around Rs 8,951.

Illustrative calculation: Rs 1,00,000 purchase, 12-month tenure

Parameter	Credit Card EMI	Personal Loan
Purchase/loan amount	Rs 1,00,000	Rs 1,00,000
Tenure	12 months	12 months
Illustrative interest rate	16% pa reducing	13% pa reducing
Monthly EMI	Rs 9,073	Rs 8,932
Total interest	Rs 8,877	Rs 7,181
Processing/conversion fee	2% + GST = Rs 2,360	1.5% + GST = Rs 1,770
GST on interest	Rs 1,598	Not applicable to interest
Approx. total cost of credit	Rs 12,835	Rs 8,951
Approx. total outgo	Rs 1,12,835	Rs 1,08,951
Impact on credit limit	Reduces available card limit; limit is progressively restored as repayment is made	No impact on credit-card limit
Prepayment/foreclosure	Terms and charges vary by card issuer	May attract charges depending on lender and product

(The calculation is illustrative only. Actual interest rates, processing fees, GST treatment, foreclosure charges and other terms vary by lender/card issuer and the specific offer.)

Beware Of The 'No-Cost EMI' Trap

Festive sales also bring plenty of "no-cost EMI" offers. The phrase does not necessarily mean there are zero charges.

In such offers, the interest charged by the bank may be offset through a discount offered by the merchant or brand. However, processing or conversion fees and GST may still apply.

There is another festive-season trap. One EMI may look manageable. Then comes another purchase during the next sale. And another one after that.

Suddenly, three small EMIs become a sizeable monthly obligation. "Borrowers also need to avoid looking at each EMI in isolation. They should add their existing EMIs and other fixed obligations before taking on another loan," Dua said.

The credit-card limit also needs to be considered. A large EMI purchase can reduce the available card limit, although the limit is progressively restored as repayments are made. A personal loan does not directly reduce the credit-card limit.

So, Which One Should You Choose?

There is no single answer for every festive purchase. A credit card EMI may be useful when the purchase is relatively small, the tenure is short and the overall charges are competitive.

A personal loan may be worth considering for a larger expense or when a longer, fixed repayment schedule is more suitable.

But the final comparison should be based on total repayment, interest, processing or conversion fees, GST, tenure, foreclosure terms and your existing debt obligations.

The simplest rule is also the most important: do not choose an EMI just because the monthly number looks affordable.

Before buying that festive-season television, smartphone, appliance or furniture, check how much the purchase will actually cost you after the last EMI is paid.

"Neither option is inherently cheaper. The better fit depends on the purchase size, repayment horizon and the borrower's credit profile," Dua said.