0% Installment Plans: Things You Should Know

credit card shopping at 0% installmentIn the Philippines, many credit cards now come with a 0% Installment Plan – a repayment scheme that allows you to repay credit card purchases made at selected merchants by installments and be charged at absolutely no interest.

In this article, we reveal some of the things you might need to take note of if you’re planning to use a 0% Installment Plan to make a purchase.

Make Sure It Really Is “Zero Percent (0%)”

In an ideal world, a 0% Easy Payment Plan means you pay absolutely no extras on your purchase.  In practice, however, it is not uncommon (though not always true) for Filipino consumers to be charged an upfront administration / installation fee by the merchants offering the 0% Installment Plan.

So before activating a 0% Installment Plan, make it a point to inquire with the merchant if such additional costs exist.  For a big-ticket item at, say, PHP100,000, a 3% service charge means you’re paying PHP3,000 extra right from the start!  This in turn defeats the whole purpose of engaging in a repayment plan where you supposedly pay “0% interest”.

Ascertain That the Zero Percent (0%) Interest Applies to Your Purchase

Despite what many people think, 0% Installment Plans usually do not cover everything.  Most of the time, the banks have their own lists of participating merchants offering 0% Installment Plans for the credit cards it issues; and every merchant in turn has its own terms and conditions binding the use of 0% Easy Payment Plans in its outlets.

Example: BDO credit cards are only able to give you a 0% installment plan if you are buying from an SM Department Store and Groceries for a minimum amount of PHP3,000 legible for 3 month installment.

Simply put, you wouldn’t be able to just walk into your favorite outlet and expect to sign up for a 0% Installment Plan, without first making sure that the outlet (i) does support the said Plan on your credit card, and (ii) does support the said Plan for the specific amount of your intended purchase.

Take Note of Late Payment Rules and Other Policies Imposed by Your Credit Card  

When you sign up for a 0% Installment Plan, bear in mind that you are expected to service the installments promptly and strictly… probably more so than a standard credit card transaction.

With most banks, failure to service your 0% Installment Plan installments would result in:

– Automatic revoke of your 0% interest benefit (where you’ll end up paying the standard credit card interest rates at an average of 3.50% per month), or

– Termination of your installment plan (where you’ll be expected to settle the outstanding amount in full)

… Either way, the impact on your financial state is going to be drastic and unpleasant.

Additionally, take note that some banks do charge a fee for early settlement of outstanding amount on a 0% Installment Plan, whilst others don’t.  If early settlement is an option you may wish to take, it’ll be to your interest to check this out with your bank.

Understand the Influence of 0% Payment Plan on Your Spending Behavior

There are always two sides to a story when it comes to financial instruments.  With a 0% Installment Plan, the very convenience that enables you to make a vital purchase (such as buying a computer you absolutely need for your work) could also entice you to spend way beyond your means (such as buying the very same computer but at two specs higher than what you need).

The common pitfall when it comes to a 0% Installment Plan is that most people tend to look at the smaller installment amount rather than the larger full purchase amount.  Whilst PHP 10,000 for that unnecessarily large TV might sound way too expensive in lump sum; you could be enticed to make the purchase if you choose to evaluate the purchase based on PHP 500 per month for 20 months.  When making a purchase using a 0% Installment Plan, make sure you always have the bigger picture (sum) in mind!

Love this article?  You might also be interested to find out more about why you should get a credit card.

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