Credit card EMI vs personal loan: which costs less?

You want to buy something big, a laptop, a phone or a fridge, and spread the cost. Two common options are converting the purchase into a credit card EMI, or taking a personal loan and paying in full. Comparing the interest rates alone can mislead you, because the two are charged differently. This guide puts them side by side using the same yardstick: the total extra cost, and the effective yearly rate.

The short answer: it depends on the amount, the tenure and the fees. A personal loan's lower rate tends to win on larger amounts over longer periods. On small amounts over a few months, a personal loan's percentage-based processing fee can tip the balance the other way. And a genuine no cost EMI usually beats both.

All rates and fees below are illustrative, not any lender's actual pricing. Use the calculators with the numbers from your own offers.

How each one is charged

Credit card EMI. The bank converts the purchase into a loan at its EMI interest rate. You pay:

• interest, built into each EMI, on a reducing balance;
• GST on the interest part of every EMI, because the GST exemption for loan interest (Sl. No. 27(a) of Notification No. 12/2017-Central Tax (Rate)) leaves out "interest involved in credit card services";
• a one-time processing fee, if your bank charges one, plus GST on it.

Personal loan. The lender gives you the money, and you repay it in EMIs. You pay:

• interest, on a reducing balance;
• no GST on the interest, since interest on an ordinary loan is exempt under that same entry;
• a processing fee, often a percentage of the loan and usually deducted from what you receive, plus GST on it, because a fee isn't interest and isn't exempt (CBIC Circular No. 102/21/2019-GST);
• any other charges listed on your Key Facts Statement (KFS).

So the card EMI usually has the higher interest cost (a higher rate, plus GST on interest), while the personal loan often has the higher upfront fee. Which matters more depends on how long you borrow for.

GST on financial services is 18%: 9% central tax under Notification No. 11/2017-Central Tax (Rate) (heading 9971) plus 9% state tax. Our calculators use 18% by default; your card statement or the loan's KFS shows the GST actually charged.

Example 1: ₹1.5 lakh over 12 months

Say the card offers a standard EMI at 16% a year with a 1% processing fee, and a lender offers a personal loan at 12% with a 2% processing fee.

The personal loan's fee is higher (₹3,540 against ₹1,770), but over a full year the card's higher rate and the GST on its interest matter more. The personal loan comes out ₹4,015 cheaper, at an effective 16.6% a year against 21.2% for the card EMI.

Note how GST on interest alone adds ₹2,397 to the card EMI. That's a cost the personal loan simply doesn't have.

Example 2: ₹30,000 over 3 months

Now a smaller purchase over a short period, with the same rates. The card charges a flat fee of ₹199; the personal loan still charges 2% of the amount.

This time the card EMI is ₹127 cheaper. Over just 3 months there isn't much interest either way, so the personal loan's fee of ₹708 outweighs its lower rate. That's also why its effective rate, 26.6%, is so far above the 12% on the offer: an upfront fee spread over a few months is expensive per year.

The gap here is small, and a different fee or rate could flip it. The point is that the answer changes with the amount and tenure, so it's worth running your own numbers.

Where no cost EMI fits

If the seller offers a no cost EMI on your purchase, the merchant pays the interest through an upfront discount. You still pay GST on that interest and the processing fee with its GST, but the total is usually much lower than either option above.

For the same ₹1.5 lakh over 12 months, at a bank EMI rate of 16% and a ₹199 fee, a no cost EMI would cost ₹2,436 in all: ₹2,201 of GST on interest plus ₹235 for the fee. That's an effective rate of about 3.0%, well below the personal loan.

Check that paying in full wouldn't get you a better price, though. A discount you give up is part of the cost. Our guide Is no cost EMI really free? covers this.

Other differences that matter

• What you can use it for. A card EMI is tied to one purchase. A personal loan lands in your bank account and can pay for anything, including several purchases or a seller that doesn't accept cards.
• How much you receive. If the lender deducts the processing fee from the amount paid out, as your sanction letter will show, you may need to borrow slightly more to have the full purchase price in hand, which adds a little interest.
• Your credit limit. A card EMI blocks part of your card limit until it's repaid. A personal loan doesn't touch your card limit.
• Paperwork and time. A card EMI is usually set up at checkout or in your bank's app. A personal loan needs an application and the lender's approval, and comes with a sanction letter and KFS.
• Closing early. Both can carry a charge for closing early, depending on your bank's card EMI terms or your loan agreement. Check before you choose if you might repay early.
• Missed payments. A card EMI is part of your card bill. If you don't pay the full bill, interest on unpaid card dues and late fees can far outweigh any saving.

How to compare your own offers

1. Card EMI: enter the purchase amount, tenure, the bank's EMI interest rate and processing fee in the credit card EMI calculator. Note the total extra cost and effective APR.
2. Personal loan: enter the same amount and tenure, the loan's interest rate and processing fee, with GST, in the actual interest rate calculator. Note the total cost and APR.
3. Compare like for like: same amount, same tenure. The option with the lower total extra cost is cheaper; the effective APR tells you the same thing as a yearly rate.
4. Then weigh the rest: flexibility, your card limit, and how sure you are about repaying on time.

Both calculators work out the yearly rate the same way: the internal-rate-of-return method RBI illustrates for loan APRs in its Key Facts Statement circular. So their results can be compared directly.

For how GST on card EMIs is worked out month by month, read How GST on credit card EMI is calculated. For how a processing fee changes a loan's real rate, see Processing fee and GST: how to find a loan's actual interest rate.