In Singapore, consumers have limited options when it comes to paying for a product using 0 percent installment plans. Perhaps one of the most popular ways is the use of credit card 0 percent installment payment plans(IPP). What are the pros and cons of using this payment method, and are there any other alternatives in the market?

What you can expect from a 0 percent installment plan

It isn’t exactly free.

Well, that’s not a surprise isn’t it? After all, banks are profit-making entities, and even if the marketing angles the service as something free, that’s not what the terms and conditions say.

Firstly, banks often include a one-time processing fee when you take up the plan. This range from 3 to 6%, depending on the amount charged and the duration of the payment plan. For instance, if you are buying a furniture set for your living room that costs $2,700, be prepared to pay a processing fee of $135 if you pay it over a 12-month period.

What’s more, you will be liable for some high-interest charges (up to 18.18%) if you are late on the payment.

If you decide that you want to pay off the entire amount before the end of the tenure, you will also be charged an early pre-payment charge. DBS charges $150 for this, while CIMB charges $50.

Don’t think about your credit card rewards on the IPP

Some credit card users may be happy about using the IPP since they mistakenly think that it is entirely free and that they can earn credit card rewards at the same time. Most banks state in their terms and conditions that the amount charged under IPP will not be eligible for these rewards unless otherwise stated.

Amount charged counts towards your credit card limit

When you purchase an item using the 0 percent Installment Plan, what happens is that the bank pays the merchant the lump sum ahead, and allows the consumer to pay them back in instalments. This means that you owe the bank money, not the merchant. This is why the bank will count the amount charged towards your credit limit since they are taking a risk by lending you money.

For instance, your credit card limit may be $5,000 and you used it for an instalment purchase of $3,000 spread out over 6 months. This will mean that your credit limit for the card is now reduced to $2,000. As you can imagine, this may cause some inconvenience to the cardholder, who may easily hit the credit limit should they need to use their credit cards in other instances.

Are There Other Alternatives? 

The IPP is perhaps the most popular payment method used by merchants to provide instalment payment options for consumers, but it also means that those without a credit card (who may not earn enough for one) will not have access to these plans.

While alternatives are limited, there is a website in Singapore call Rely.sg which allows consumers to shop online with instalment plans without requiring a credit card. For now, the product list is limited to electronic gadgets such as mobile phones, laptops and television but it can be a good alternative for those without a credit card. There is a one-time processing fee which will be clearly shown on the page when you decide to purchase with no hidden cost.

Think twice before you sign up for a 0 percent Installment plan next time!