Manila, Philippines

0% Installment via Credit Cards

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Christmas season is fast approaching and Filipino spending across socio-economic classes is once again expected to increase in the last 3 months of 2011. Mall chains, anticipating the holiday rush, are offering 3-day sales in the coming weekends, especially payday weekends. Certain malls even offer 0% installments via credit cards for purchases reaching a minimum amount. Case in point is SM Malls offering 0% installment if you use any Philippine-issued credit card and if your purchases reach a minimum of Php5,000. This offer is good if you shop on or before 31Dec2011.
If you have a credit card and you think you can pay at least Php833.33 per month in the coming months, then I suggest you grab this opportunity. Why is that? Well, if there are installment offers out there, only a few comes with real 0% interest whereas for the rest of installment offers, you actually get charged a certain interest rate for availing of the installment.

Like personal loans, installments give us the payment flexibility and cash flow management, and yet we get to enjoy the items we purchased instantly. And unlike personal loans, we do not pay extra interest for 0% installments. 

Imagine buying a shoe for Php3,000 or a laptop for Php20,000 perhaps. Then the shoe, you purchased on 6-months 0% installment while the laptop on 12 months 0% installment using your credit card. Then you just need to pay Php500 a month for the shoe, for the next 6 months, while you just need to pay Php1,666.66 for the laptop for the next 12 months. But you already get to wear the shoe you just bought, or write blogs using your new laptop, even if these two items are not yet fully paid. This is the purchase-now-use-it-now-pay-later-in-installments advantage of credit cards.

Again, you need to make sure that you are availing of a 0% installment. Some things to take note of:

1. Transaction: 0% installments are usually availed in the stores where you purchased the item, rather than calling a credit card hotline to have certain balances converted into installments. The latter usually comes with an interest rate.

2. Price: Certain merchants charge you higher if you pay via credit card than if you pay via cash. Further, some merchants charge you even higher if you are availing of credit card installments instead of straight card purchases. If this is the case, then this is no longer a 0% installment.

You might ask, how will the malls/merchants and the credit card companies earn if you get something on installment with no interest at all? Do you feel like you’re missing something, that this is too good to be true? Well, this is true advantage, financial leverage at no hidden costs, if you handle the repayments properly.

We are not aware of the details of the agreement between the merchants and the card companies, but what we know if that card companies actually pay for the items at a discount, meaning if we purchase an item worth Php5,000 on installment, chances are the card company will pay the merchant at an amount less than Php5,000, say Php4,800. Then the Php200 is the card company earnings. Then the merchant just needs to make sure that the Php4,800 actual selling price, is still profitable.


Also, since your card balances will remain in your card for 6 to 12 months from now, card companies stand to earn should you revolve on your monthly dues, that is if you pay only the minimum due amount and not the full billed balance. If you do this, the remaining unpaid balance will be assessed with finance charges, and you end up paying higher than your actual credit card balances.

So again, being responsible with our finances, when we avail of installments (and when we use our cards in general), we need to make sure that we have the capacity to pay the monthly billed balances (monthly installment amortization) in full in the coming months until we pay-off the whole transaction amount. If we pay just partially or we just pay the minimum amount due, then we are actually shooting ourselves in the foot since we will end up paying a higher amount. Which in effect defeats the purpose of 0% installment, right?

PS. You know what’s the best deal? Purchase all items on sale (at huge discounts), then pay them via credit card 0% installment. You already got items at a bargain, you even got a financial leverage by paying in deferred monthly amortizations, at no additional hidden charge at all.

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