What banks don’t tell you about Installment Plans
Installment Plans
First, having a credit card allows us to buy big ticket items using installment plans with 0% interest. Expensive items could cost more than a month’s salary, and this will definitely reduce our liquidity. If we do not have sufficient savings, we have to wait for a long time before we have the money to pay for it. For example, if the television set breaks down and there is a need to buy a new one, we do not have to wait for a few months before we buy it, especially if finances are tight. Having 0% interest installment plans allows us to pay a much smaller sum of money over a few months. On the positive side, we get to enjoy the use of a product or a service first before spending all our money.
However, I do not really encourage using such installment plans as there are many drawbacks. The amount of money owed to the bank reduces the credit limit and if we plan to buy other items, we are working with less credit available. With the reduction in credit limit, the bank will charge you a sum possibly $40 or more when you exceed your credit limit. This is on top of other fees incurred. The sum of money will add up to a really large amount.
Personally, I feel frustrated when I keep seeing a recurring amount on my credit card statement, many months after I have chucked that item aside. The never-ending payments do not allow me to make better plans with my money.
Moreover, if you choose to terminate the plan, you may have to pay an administrative charge of $100 or more to the company. This reduces the voice of the consumer. Should you decide to cancel this credit card, you will have to pay additional charges. You cannot repay your installments early. It can be puzzling why banks allow such schemes. One reason is that they hope customers would pay the minimum sum and then they can earn interest on all subsequent charges made to the card. Hence, installment plans should be used with care.
Sarah Tan – SingaporeProfit.com
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