Buying on EMI? Expert says stretching your budget for gadgets is a financial red flag

When you're in urgent need of funds, two commonly used options often come to mind: personal loans and credit card EMIs. While both provide quick access to cash, they differ significantly in terms of interest rates, repayment flexibility, tenures, and borrowing limits. Understanding how each works can help you make a more cost-effective borrowing decision.

Both credit card EMIs and personal loans allow you to break large expenses into manageable monthly instalments, offering temporary financial relief. However, for long-term financial health, choosing the right product is essential. Here’s a detailed comparison to help you figure out which one works best for your needs.

What is a personal loan EMI?

A personal loan is an unsecured loan provided by banks, NBFCs, or fintech lenders. It is repaid through fixed monthly instalments (EMIs) over a set tenure, usually ranging from six months to five years. These loans are typically used to meet essential expenses like medical emergencies, weddings, education, or home renovations.

Personal loans come with relatively lower interest rates compared to credit card EMIs, offering more predictability and lower monthly outgo, especially for longer tenures. Since they're not linked to your credit card limit, you can usually borrow a higher amount depending on your income and creditworthiness.

What is a credit card EMI?

Credit card EMIs let you convert big-ticket purchases—usually above a certain value—into smaller, fixed payments over a period ranging from three to twenty-four months. While some merchants offer no-cost EMI deals, standard credit card EMIs carry higher interest rates than personal loans.

They’re best suited for short-term needs, like buying gadgets or appliances, but can become expensive if you miss payments. Credit cards also come with penalties, late fees, and high interest on revolving balances, which can escalate debt quickly.

Which option is more cost-effective?

In most situations, personal loans are more economical than credit card EMIs. Here’s why:

Lower interest burden: Even though personal loans are unsecured and costlier than secured loans, they are usually more affordable than credit card EMIs.

Longer repayment tenure: You get greater flexibility with repayment timelines, helping you manage your monthly budget better.

Higher borrowing limits: Unlike credit card EMIs, which are restricted to your available credit limit, personal loans allow you to borrow more based on eligibility.

Better credit score impact: Timely repayment of a personal loan is viewed more favourably by credit bureaus than outstanding or rolled-over credit card dues.

Use credit with caution

Animesh Hardia, Senior Vice President, Quantitative Research at 1 Finance, noted: “When it comes to big expenses, both credit card EMIs and personal loans should generally be used with caution. In my experience, most people turn to these options when they’re already facing a cash crunch—either converting a large credit card bill into EMIs or taking a personal loan during an emergency or to fund a risky investment. These moves often signal a lack of financial preparedness.”

He added: “There are situations where these tools can be used wisely. For example, if you’re buying a laptop or phone for Rs 1 lakh and have already budgeted for it, opting for a no-cost credit card EMI, while keeping the money in your account, can make sense. But if you’re stretching your budget just because EMI is available, that’s a red flag.”

Hardia also warned against expensive personal loans: “Personal loans, especially those with high interest rates, are best avoided unless you’re facing a genuine emergency. If you have access to a low-interest loan, such as a soft loan from your employer, it may be smarter to use that rather than dip into investments meant for your future goals.”

When to choose which option?

Choose credit card EMIs if:

You’re buying electronics or appliances and can repay quickly.

You have a short-term cash gap and expect funds soon.

You want to break up a large credit card bill into smaller, manageable chunks.

Choose a personal loan if:

You’re funding larger, planned expenses like education, a wedding, or home upgrades.

You need a higher loan amount than what your card limit allows.

You prefer predictable EMIs spread across a longer repayment term.

What should you do?

Before deciding between a personal loan and credit card EMI, compare interest rates, repayment terms, processing charges, and prepayment conditions. While both options serve specific needs, misuse or overdependence can lead to financial strain. Always align borrowing decisions with a sound financial plan—never use them as quick fixes for overspending or poor money management.