EMI Liabilities Persist After Card Closure
A common misconception among credit card users is that cancelling a card automatically wipes out any outstanding Equated Monthly Instalment (EMI) or other dues linked to it. Financial experts clarify that this is not the case. The liability for an active EMI remains with the customer irrespective of the card account status.
Kumar Binit, CEO of airpay money, stated, “Cancelling the credit card does not necessarily lead to the cancellation of the pending EMI liability. The EMI will be payable as per the conditions of the EMI scheme irrespective of the closure of the card.”
The method of collecting these remaining instalments varies by lender. Some banks may set up an eNACH mandate on the customer’s bank account to continue auto-debiting instalments. In other cases, the bank may require the remaining principal to be settled immediately. Sudheer, Head of Growth & Marketing at Kredit.Pe, noted that banks generally require all dues to be cleared before a card is fully closed. He explained, “The pending EMI counts as a due. So the remaining principal usually gets billed at once, with a foreclosure charge of about 3 percent plus GST.”
Customers are advised to confirm with their specific card issuer how the outstanding EMI will be billed and whether a foreclosure charge applies before initiating the closure process.
Reward Points and Pending Refunds
Beyond EMIs, the treatment of reward points is another critical factor. Points do not automatically survive card closure. Their validity depends on the specific terms of the issuer’s rewards programme.
“In many programs, reward points expire after account closure, while others may allow for redemption during a certain period following account closure,” Binit said. Both Binit and Sudheer recommended that customers redeem any accumulated points before requesting closure to avoid forfeiture.
Additionally, customers must check for any pending refunds or disputes. If a refund for a returned purchase is credited to a closed card, the customer may need to contact the issuer to receive the amount via bank transfer. It is also essential to migrate recurring auto-payments, such as OTT subscriptions or insurance premiums, to another payment method before the card is deactivated.
Steps to Avoid Financial Pitfalls
To ensure a smooth card closure process, experts recommend the following steps:
1. **Verify Outstanding Dues:** Check for any pending EMIs, interest charges, or late fees. 2. **Understand Foreclosure Charges:** If the EMI is to be settled at once, confirm the exact foreclosure amount and applicable taxes. 3. **Redeem Rewards:** Use or redeem all available reward points before the closure date. 4. **Update Auto-Payments:** Move all recurring transactions to a different card or bank account. 5. **Check for Refunds:** Ensure no pending refunds are tied to the card. 6. **Retain Documentation:** Keep the final statement and proof of closure for future reference.
Sudheer also highlighted that if the card being closed is one of the customer’s oldest credit accounts, doing so may impact their credit profile, depending on their overall credit history. Customers should maintain sufficient balance in any linked bank account if an auto-debit mandate is active to prevent bounce charges and adverse credit score impacts.