Can You Pay Your Car Loan EMI Through a Credit Card?

Summary: Credit card payments are usually not accepted by most banks for EMI payments on car loans. Third-party payment solutions have a convenience fee of 1% to 2.5% along with GST, and no reward benefits. Find out more about the impact of BBPS guidelines on such transactions, and how making use of this method can change your low-interest secured auto loans into expensive credit card payments.

As you consider whether you can make your EMI payments with your credit card, specifically while handling a car loan or any other monthly payments, you need to understand that most banks and other financial institutions don’t accept payments directly from a credit card. In fact, it has costs and risks associated with them.

While taking a car loan, for example, many people tend to find out how to pay their monthly payments for vehicles and EMIs on their loans. This is a brief guide to whether you can use the credit card for this purpose, how it is done, its costs, risks, and better options.

Can You Do It Directly? (Mostly No)

EMI payments for most car loans are made automatically through auto debit/NACH payment from the bank account of the borrower. While many may wonder “Can I pay EMI with a credit card”, in most cases, the answer is no, since in India, banks do not allow the use of  “pay by credit card” for repaying loans, and some actively block it. The reason is that banks treat loan repayments differently from ordinary retail sales. There is no provision for point-of-sale or net banking payment through credit cards.

It is important to verify the list of allowed payment options for your particular financial institution before trying to use any other method. For example, if you handle your car loans through structured payment systems such as the Tata Capital Car Loan program, your repayment process would be more convenient via predetermined banking channels (ECS, direct debits, Internet banking/ UPI on their website) instead of any direct transaction from a credit card.

Also Read – How to check car loan eligibility criteria in India?

How People Try It: Third-Party Apps (and the 2024 Catch)

Where direct payment methods do not work, borrowers usually look for ways to pay their loan EMI through a credit card. The normal process consists of resorting to financial apps from a third party, such as CRED, PhonePe, or other services through which one can make payments by using a card and paying out as a transfer or bill. In such a situation, a borrower feeds his credit card details and makes payments by using plastic money, and the platform tries to move the money outwards towards the lender.

The Catch: With the July 2024 updates made to the Bharat Bill Payment System (BBPS) and the National Payments Corporation of India (NPCI), whether this works completely depends on whether the card you are using has been updated to the BBPS system by your bank. Due to this requirement, this cannot be a reliable approach, and your payment will just be rejected. Instead of being a typical financial practice, this is a fragile solution.

The Real Cost: Fees and Lost Rewards

The honest math reveals why paying back loans through credit cards will never be cheap. In case you want to know how you can pay your EMI through a credit card, here are the facts on the ground:

• The Surcharge: Fees levied by third-party service providers include a convenience surcharge of 1-2.5% (sometimes 2-3%) and an additional GST on the EMI amount.
• The Reward Void: There is usually no earning of any rewards on the use of cards for payments to loans or financial institutions.
• The Bottom Line: This is paying a surcharge and not earning any rewards, which is the exact opposite of the offers that you are pitched.

In order to ascertain the viability of “can i pay emi with a credit card in terms of practicality”, you must check out the real costs. The roughly 2% processing charge on a ₹15,000 instalment for a monthly loan comes out to around ₹300 extra per month. This recurring cost covertly strips away the main reason for resorting to the use of plastic currency, making the supposedly financial trick an unending loss of money without any compensation.

Also Read – Advantages and Disadvantages of a Car Loan

The Bigger Risk: Swapping Cheap Debt for Expensive Debt

The problem with plastic money for the monthly liabilities arises from the fundamental disparity between interest mechanisms. As for the question of whether you can pay EMIs with your credit card, it should be pointed out that a car loan is an instrument of secured finance at relatively low interest rates, 7-15% p.a. However, a credit card carries an extremely high rate of annual interest of 36-48% p.a., in case you do not repay in full on time.

In case you pay your car loan EMI with a credit card and still cannot repay the statement, you are essentially converting your low-interest loan into high-interest card debt, which is an absolute trigger for a debt burden. Moreover, if you are thinking “can i pay emi with credit card”, and your bank account lacks enough money to settle the instalment, then this is a cash flow red flag that needs immediate attention rather than hiding behind it.

Note: It is important to know that making hefty payments with your credit card can lower your credit utilisation and affect your CIBIL score directly.

Also Read – What is a Zero Down Payment Car Loan in India?

Smarter Alternatives (What to Do Instead)

In case you are experiencing temporary financial problems and are anxious about defaulting on the payments, there are many positive ways to manage your EMI crunch without adopting dangerous alternatives for assessing whether we can pay EMI through a credit card:

• Align the EMI Date: Request your financier to align your auto-debit date as close to your salary credit date as possible, thereby fixing any timing issues that result in cash flow problems.
• Reach Out to the Financier Ahead of Time: Discuss financing alternatives with customer care services in case you wish to avoid a default on your payments.
• Go for a Partial Pre-Payment or a Top-Up: If you have to face a consistent cash flow problem, then try a regulated borrowing solution such as Tata Capital Car Loan Top-Up, which costs less than revolving credit.
• Create an Emergency Fund: Save up some money in an exclusive account that you would be using to pay off your fixed monthly obligations.

• Take Credit Card Help Only for an Emergency: In case you have to use your credit card once to avoid bouncing the cheque in the bank while deciding how to pay loan EMI through credit card, be sure to do so only once in an emergency situation.

If you want to review the details of your repayment plan, consider restructuring or seek financial aid. Once done, head on over to the official Tata Capital website or install the Tata Capital mobile app to learn more about your account features and services.

Can I pay my car loan EMI with a credit card?

Routing the payment process using plastic money is not a solution in most cases when it comes to whether we can pay EMI through a credit card. The use of a third party attracts additional convenience fees and no reward scheme at all. This leads to a debt cycle of changing affordable secure loans to expensive revolving liabilities. In case you are experiencing financial constraints, try matching the billing period, contacting your creditor beforehand, or opting for the Tata Capital Car Loan Top-Up. If you need more information on vehicle loans and account management, go to the official website of Tata Capital or install the Tata Capital Mobile App.

Disclaimer: The information provided here is for educational purposes only and should not be taken as financial advice. The payment processing methods, regulations of the site, and convenience fees differ greatly from one bank/card/lender to another. Check out the current policies at your financial institutions before you make any transaction.