Payment of equated monthly instalment (EMI) through credit cards at point-of-sale (PoS) is gaining momentum. This trend is now adopted by high-value services such as educational institutions, and the scheme is likely to be implemented by travel and insurance sectors in a large scale.
However, the entire brouhaha about the ‘EMI on credit card’ as a good option for paying for tuition fees or other education-related expenses seem to be way too simplistic rather than being smart. “Agreed, it does give convenience and speed to the customer. However, this mode of payment does have its own limitations, especially when compared with traditional education loan either from bank or NBFC (non-banking finance company),” said Prashant A. Bhonsle, Country Head, Credila Financial Services Pvt. Ltd., an HDFC company.
The Reserve Bank of India had banned EMI at PoS as some vendors offered zero per cent interest EMI schemes for their products as this could be misleading the customers and they would end up paying something which they were not able to afford. After this ban, to increase the credit card business, banks are tying up with establishments delivering high value services.
Is credit card a good option for paying for education? For starters, education loan product offers moratorium (mostly principal) during the course period plus up to one year after the course and till the student gets a job. According to Mr. Bhonsle, this simply reduces the burden of immediate repayment as may be the case with ‘EMI on PoS’ route. Secondly, another big benefit of education loan compared to any other way of paying is the income-tax exemption under which the entire interest paid during the year on education loan can get exempted from the taxable income of the student or the parent or any one who has been accepted by the lender as a co-borrower. Also, the long repayment tenures of up to 10-12 years of education loan product makes it easier for the student. Lastly, getting the entire loan approved upfront and taking disbursement as and when the fees are due is just simple financial prudence on the students and parents part.
Published - May 05, 2014 11:27 pm IST
