Have Rs 1 Lakh In Credit Card Debt? Here’s How Personal Loan And EMI Costs Compare

A Rs 1 lakh credit card balance can become difficult to manage when interest continues to build on unpaid dues. Borrowers looking to bring down the cost may consider converting the balance into a credit card EMI or using a personal loan to repay it. The two options work differently, with interest rates, repayment periods, monthly instalments and additional charges affecting the final amount paid. Comparing the complete cost before choosing either route is therefore important.

Why Rs 1 lakh of card debt can become expensive

Credit cards are designed primarily for short-term borrowing, but carrying an unpaid balance from one billing cycle to another can make the debt considerably more expensive. The amount owed may continue to attract interest until the outstanding balance is cleared, depending on the card's terms and the payments made.

For someone carrying a Rs 1 lakh outstanding balance, simply paying the minimum amount due may not be enough to bring the debt down quickly. A borrower may therefore look at ways of converting the liability into a structured repayment plan.

Two possibilities are a credit card EMI conversion and a personal loan. Both turn an existing liability into scheduled payments, but the pricing and conditions can differ from one lender or card issuer to another.

How a personal loan can change the repayment

A personal loan is generally an unsecured loan offered by a bank or financial institution. Unlike a credit card balance, it comes with a defined loan amount, interest rate and repayment tenure.

Personal loan rates vary according to the lender and the borrower's profile. For illustration, consider a Rs 1 lakh personal loan carrying an annual interest rate of 10% and a 12-month repayment period.

At a 10% annual rate on a reducing balance, the monthly EMI would be about Rs 8,792. Over 12 months, the borrower would repay roughly Rs 1,05,499, including around Rs 5,499 in interest.

This example shows why the interest rate alone should not be viewed in isolation. Processing charges, taxes and other applicable fees can increase the actual cost of borrowing.

A personal loan can also offer a longer repayment period than a 12-month illustration. That may reduce the monthly EMI, although extending the tenure can increase the total interest paid over the life of the loan.

What happens with a credit card EMI?

Credit card EMI facilities allow eligible transactions or, in some cases, outstanding card balances to be converted into fixed monthly instalments. Instead of continuing with a revolving balance, the borrower repays a predetermined amount over the selected tenure.

The applicable interest rate depends on the card issuer, transaction and repayment period. For this comparison, consider a Rs 1 lakh balance converted into a 12-month EMI at an annual interest rate of 14%.

Using a reducing-balance calculation, the monthly EMI would be about Rs 8,979. Across 12 months, the total repayment would come to approximately Rs 1,07,745. The interest component would therefore be about Rs 7,745.

On these assumptions, the credit card EMI costs more in interest than the 10% personal loan example. The difference is roughly Rs 2,246 over one year, before considering any processing fees, taxes or other charges.

The actual amount can vary because lenders and card issuers may apply different interest calculations, fees and terms.

Personal loan vs credit card EMI: What should borrowers compare?

The first point to examine is the effective borrowing cost. A lower advertised interest rate does not necessarily mean the lowest overall cost if processing fees or other charges are significant.

The monthly EMI is another important consideration. A repayment option that looks cheaper overall may still be difficult to sustain if the instalment is too high for the borrower's monthly budget.

Tenure also matters. A longer repayment period can make each month's payment easier to manage, but the borrower may pay more interest in total. A shorter tenure generally increases the EMI while reducing the period over which interest is charged.

Borrowers should also check whether the credit card issuer charges a conversion fee for moving the outstanding amount into EMI. Similarly, personal loans can involve processing fees and applicable taxes.

The choice depends on the borrower's repayment position

A credit card EMI may be considered when the objective is to convert a card purchase or eligible outstanding amount into fixed instalments without taking a separate loan. It can provide a defined repayment schedule instead of leaving the balance revolving.

A personal loan, meanwhile, provides a separate pool of funds and may offer greater flexibility in how the borrowed money is used. Depending on the lender, it may also provide longer repayment tenures.

However, according to financial experts, borrowers should not make the decision based solely on the monthly EMI. A lower instalment can sometimes result from a longer tenure, while the total interest bill continues to rise.

The borrower's repayment capacity is equally important. Taking a new loan to clear credit card debt can make sense only if the new repayment structure is manageable and the card balance is not subsequently rebuilt.

Check the full cost before making a decision

For a Rs 1 lakh balance, the illustration shows how even a few percentage points in the interest rate can affect the repayment cost. At 10% for 12 months, the personal loan example works out to roughly Rs 1,05,499 in total repayment. At 14%, the card EMI example comes to around Rs 1,07,745.

These figures are only illustrations and should not be treated as guaranteed offers from any lender or card issuer. Actual rates, fees, taxes, tenure options and eligibility criteria can differ.

Before converting the balance or applying for a personal loan, borrowers should compare the interest rate, EMI, total repayment, processing fee, taxes, foreclosure or prepayment conditions and other applicable charges.

The most suitable repayment route will depend on the borrower's financial circumstances, available interest rates and ability to repay the debt on time. Checking the complete cost rather than focusing on the EMI alone can provide a clearer picture of what the Rs 1 lakh debt will ultimately cost.

Disclaimer: This content is for informational purposes only and should not be considered financial advice. Interest rates, fees, EMI amounts and loan terms may vary by lender, card issuer and borrower. Readers should check the applicable terms before making any financial decision.