If you want that electronic products for your home but don’t have $10,000 to pay for it in one go. No matter: you can pay for it in instalments over four years with no interest, on your credit card – or so banks and retailers would have you believe.
What they won’t tell unless you ask, are the pitfalls of not keeping up with full monthly payments for that item, or worse, having your card cancelled before the loan is all paid up.
A check with local banks in Singapore that offer such schemes revealed that consumers do not get charged interest only when they pay the prescribed instalments in full every month.
If they default on a payment or roll over part of it, that portion of it will be charged interest the following month – at the usual rates for credit card payments.
So, if your credit card bill for the month came up to $1,000, of which $200 was part of an instalment plan, then paying just the minimum required sum of say $50 would leave the full remaining $950 liable for interest.
Unless consumers know how to ask the right questions, they may not understand what they are gietting into. With the rising incidence of credit card bad debt, the consumers has to be careful before committing to a long-term purchase.
The interest-free instalment plans are becoming popular, especially with yound working adults who have less disposable incomes.
Retailers had to be “completely transparent with customers”. But shop salesmen often neglect to inform customers about these “hidden costs”, sometimes because they have not thought about them.
Customers say they are often not told the terms and conditions of a deal when they sign up for one.
This meant that the usual contractual interest and late charges would apply to unsettled bills and if a credit card gets cancelled, the balance has to be paid up in full. Some bank even charges a penalty of $100 per item purchased on an instalment plan for early settlement, which prematurely ends the customer’s “life-cycle” with the bank.
So signing on that dotted line means promising to keep to regular monthly payments determined by averaging the price of the item over the chosen period of time.
Spordaic payments, or paying too little or too much would mean forfeiting that “0 per cent” interest.
Banks here are cagey about the number of customers who default or roll over balances on thier instalments but say that it is in line with overall credit card debt.