Instalment plans: Enjoy the convenience, mind the costs
If you don’t have time to read through the whole article, you can check out our short version below.
Instalment plans offer convenience, but may come at a cost.
Instalment plans let you buy a big-ticket item or service and stagger your payments over a period of time.
They are offered directly by retailers or through credit card issuers, such as banks. Retailers charge a flat rate of between 11% and 27% for Singaporeans, and up to 34% for foreigners.
Some banks’ instalment plans may have zero interest for a period of time if they tie up with “participating merchants”, but you are encouraged to pay monthly instalments on time and in full.
Instalment plans allow you to purchase a big-ticket item or service and stagger your payments over a period of time, ranging from three months to several years.
They may be offered in two ways:
- Directly by retailers, such as furniture or electrical stores. Also known as “hire purchase” plans
- Through credit card issuers which have tie-ups with some stores
On the one hand, such plans offer payment convenience: You can bring home that ultra-high-definition TV or laptop and pay later in instalments.
On the other hand, be wary of the costs involved. Some retailers charge a flat rate of between 11% and 27% for Singaporeans, and up to 34% for foreigners.
While a longer instalment plan lowers your monthly repayments, you may end up paying more in interest over time. Sometimes, the total cost of your purchase (including interest and processing fees) could even be more than the original price of the item.
In comparison, some banks’ instalment plans, such as DBS’, may offer zero interest for a period of time, if they tie up with other retailers (known as “participating merchants”). But do note that you have to pay monthly instalments on time and in full. There might be processing fees, depending on the duration of your instalment plan.
Note that if the plan is charged to your credit card, your credit limit decreases with each monthly instalment and resets only when the full payment is made. You also cannot cancel your credit card during the term of the instalment plan; if you do, the outstanding balance under the plan becomes immediately payable. Early repayment may also incur administrative fees.
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