Credit card installment plans allow you to break up your total balance or a one-time straight payment into smaller monthly payments, making it more manageable. But is an installment plan right for you? A credit card can make you a wise spender or an irresponsible borrower.
There’s nothing wrong with using credit cards, but how you use them may affect your credit standing – for better or worse in the long run. This blog post will provide you with everything you need to know about credit card installment plans and how they work.
If you’re a first-time credit cardholder, this will help you become more responsible in swiping your card. Some tips are heads-up for existing cardholders who might learn a thing or two on how to manage a card before you buy big-ticket items.
What’s a credit card installment plan?
A credit card installment plan is a repayment plan to pay off your balance over time in smaller monthly payments. The length and the amount of these installments may differ depending on each credit card issuer and merchant.
For example, HSBC gives you the option to avail of 0% interest for three months when you buy at IKEA with a minimum of P5,000. It means, instead of paying the total amount on your due date, you only pay a portion of it (divided by three) without interest.
There is also a credit card installment plan where you pay off the total balance together with a monthly add-on rate of less than 1% or more, depending on the terms and conditions of the bank.
Some card issuers give you more control over how much to pay for what period. This way, whether you’re making money or not, at least you always make a payment every month.
How does a credit card installment plan work in the Philippines?
A credit card installment plan allows you to essentially pay off the outstanding debt until it becomes zero when you make the payment every month.
There are three types of credit card installment plans:
- Banks give you the option to pay only the minimum amount due or choose how much to pay for each billing cycle.
- Some banks include an add-on rate that adds up to your total interest paid over the life of your loan.
- Other banks offer a 0% interest installment plan where you pay each monthly due without interest for a specific term such as 3 months and up to 36 months.
If you plan to purchase an item using your credit card with an installment plan, make sure you ask the merchant or your card issuer about the terms and conditions, such as the payment terms, interest rates, fees, and more.
When should you use credit card installment plans?
Credit card installment plans are beneficial when making major purchases like appliances or home furniture. Paying in full might be difficult with your budget at present so opting for an installment plan means spreading out your payment over time without paying additional interest charges, especially if it’s a 0% installment plan.
You can use your credit card as long as you remember not to go beyond what you can afford to pay off and must not be beyond your credit limit. You wouldn’t want to leave any debt hanging and rack up due penalties and fees if ever this goes unpaid.
When should you avoid applying for an installment plan?
Applying for a credit card installment plan is not always the best option, especially if you’re starting your career or looking to start saving money. Here are some instances when having an installment plan will be unwise.
- If you’re in financial distress and can’t afford to pay off your balance in full every month, it would be advisable that you spend less and delay the purchase of the item until you are financially stable. Having a realistic budget will give you a good idea of handling your finances.
- Having a credit card installment plan is not the same as having multiple credit cards – since this will increase your debt, and you will be paying more than what you borrowed. If you’re only starting, you should save money instead of spending on something that will go to waste or lose value ten times faster than usual.
- A good plan for financial success is to establish a solid credit history before adding expensive items with installment plans. Without a good credit rating, banks won’t approve your installment plan request, and you could end up with additional charges and penalty fees for late-payments and defaults on your account.
How do you manage your card properly with an installment plan?
If you’re thinking of buying something expensive and don’t have the cash flow to do so, using a credit card installment plan may be the best option for you. Keep in mind that there are fees involved, so you must understand what you’re getting into before swiping your card.
Always select the option of having control over how much money you will pay each month instead of just choosing the “minimum amount due” with an installment plan. This way, you’ll know that even if you can’t pay off your balance – the remaining balance won’t get out of hand over time.
If you’re not confident with knowing how to check your current credit card status or payment history, always ask for help from customer service representatives knowledgeable about this area of expertise. They will walk you through your monthly account statement and explain what information is needed before making any changes to your account.
Whenever possible, aim for paying more than the minimum due each month – that way, you will avoid having extra interest fees added to your monthly bill. It may take some time, but it’s worth it in the end to have control over your finances.
Save money before spending it on something that you don’t need – so you can pay for this item later on without worrying about credit card debt. If you’re working towards having an independent life, saving should be a priority to avoid getting into any serious financial problems in the future.
Lastly, check the fine print because some promos and programs are designed differently from one another. Some banks may charge extra fees or interest rates unreasonably higher than other credit card companies.
Other things you should know about credit card installment plans in the Philippines
It can be tempting to skip reading the terms and conditions of your credit card issuer. However, reading can be a lifesaver for you to protect yourself from unnecessary financial troubles in the future with installment plans.
In general, installment plans can be paid with 0% interest or with a monthly add-on rate, depending on the bank’s offers or its partner merchants and retailers. Make sure you know the difference between these two before you make a request.
You also need to pay a processing fee for the installment plan unless the bank or merchant automatically converts the transaction into a 0% installment plan or is part of their promotion. Make sure you confirm or verify this, too.
If you want to terminate your installment plan, you must also pay the processing fee again. Usually, it costs about P200 to P500, or some banks charge you a small percent of the total balance, whichever is higher.
Before you commit to longer payment terms, read the fine print first. We hope this article has shed light on the different installment plans that most credit card issuers offer in the Philippines.
Of course, if you can afford to pay the big-ticket item in a one-time straight payment on your due date, why not? You don’t have to think about paying extra fees and interest. Otherwise, if pay for the monthly repayments, make sure you pay on time and in full.
Let us know if you have availed of a credit card installment plan recently in the comments below. How did it go?