{"id":28449,"date":"2023-11-28T18:00:37","date_gmt":"2023-11-28T10:00:37","guid":{"rendered":"http:\/\/www.imoney.my\/articles\/?p=28449"},"modified":"2024-02-08T17:14:32","modified_gmt":"2024-02-08T09:14:32","slug":"never-use-credit-card-0-instalment-plan","status":"publish","type":"post","link":"https:\/\/www.imoney.my\/articles\/never-use-credit-card-0-instalment-plan","title":{"rendered":"4 Times You Should Never Use Your Credit Card 0% Instalment Plan"},"content":{"rendered":"

Interest-free instalment plans offered by your credit card provider might be just what you are looking for right now but before you swipe that card, find out what you are getting yourself into first.<\/p>\n

Most of our readers must have come across 0% easy payment plan offers, also known as 0% instalment payment plan at some point in their daily life either online or through phone messaging apps.<\/p>\n

Sure, it allows you to manage your finances with ease, and affording you better cash flow, but if not managed perfectly, this form of credit card usage can seriously derail your finances.<\/p>\n

Refresh your memory!<\/div>
Zero percent easy or instalment payment plan on your credit card allows you to spread your payment over a certain period. Non-payment of a particular monthly instalment as per your payment schedule would result in interest charges according to your credit card issuer. <\/div><\/div>\n

As with any financial products, you need to understand what you are getting yourself into before committing. Though there are many benefits to taking up such a payment scheme, there are also downsides you need to consider.<\/p>\n

It does sound good to spread your payment with zero interest into smaller, more manageable monthly repayments, but it can also turn into a great recipe for credit card debts. A 0% instalment plan on your credit card probably works best if you are completely sure that you are able to promptly make the payment every month, and also if you have enough free credit limit to last you until you fully repaid the full amount.<\/p>\n

With all these hidden rules to using an instalment plan on your credit card, it makes sense for you to steer clear from this payment scheme for the following purchases:<\/p>\n

<\/span>1) Paying deposit for purchases made with a loan<\/strong><\/span><\/h2>\n

Many purchases require taking up a loan \u2013 such as purchasing a car or a property. However, before you can take up the loan, you are usually required to pay at least 10% down payment or deposit.<\/p>\n

If you are purchasing a Perodua Myvi 1.3 (auto) priced at RM44,590, 10% deposit would be RM4,459. If you do not have that money sitting in your bank account, the best thing for you to do is to forget about buying a car until you\u2019ve saved up enough to pay that amount.<\/p>\n

Spreading the RM4,459 over 12 months would bring your monthly repayment for your car to this amount:<\/p>\n\n\n\n\n\t\n\n\t\n\t
RM4,459 down payment over 12 months<\/center><\/th>
RM40,131 car loan at 3.50% over 7 years<\/center><\/th>\n<\/tr>\n<\/thead>\n
Monthly repayment = RM371.58<\/center><\/td>
Monthly repayment = RM595<\/center><\/td>\n<\/tr>\n
Total monthly repayment for your car = RM966.58<\/b><\/center><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n
https:\/\/www.perodua.com.my\/loan-calculator.html<\/a><\/h6>\n

That is a high monthly commitment to buy a Perodua Myvi. This is assuming that you make your credit card payment in full and promptly every month.<\/p>\n

If you fail to do so, you will be incurring a whole lot of interest charges. Here\u2019s a scenario where you only pay the a fixed payment of RM150 every month on your credit card balance of RM4,459.<\/p>\n\n\n\n\n\t\n\t\n\t\n\t\n\t
Monthly instalment for 12 months <\/td>RM371.58<\/td>\n<\/tr>\n
Fixed monthly repayment <\/td>RM150<\/td>\n<\/tr>\n
Interest rate <\/td>15% p.a.<\/td>\n<\/tr>\n
Time to payoff total balance <\/td>3 years 2 months<\/b><\/td>\n<\/tr>\n
Total interest incurred <\/td>RM1146<\/b><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n* Assuming no other transactions are made on the credit card in the same period. <\/i><\/font><\/span>\n\n
https:\/\/www.akpk.org.my\/tools\/calculators\/calc\/content_3<\/a><\/h6>\n

The above calculation shows that not paying your credit card instalment in full every month could snowball into hefty charges.<\/p>\n

This technique would only work if you are extremely disciplined in your repayments, and also if you actually have the RM4,459 in cash earning interest somewhere.<\/p>\n

If you are unable to fulfil these two criteria, there really is no good reason for you to put your down payment on a credit card 0% instalment plan.<\/p>\n

<\/span>2) Making purchases that\u2019s close to or more than your credit limit<\/strong><\/span><\/h2>\n

Most people think that the monthly instalment for their credit card goes to the merchant. That\u2019s false.<\/p>\n

When you make a purchase on your credit card using the 0% easy payment plan, the credit card issuer makes the full payment to the merchant. At the same time, the bank locks your credit limit at the full amount, but only charges you the monthly payment every month.<\/p>\n

The full amount is deducted from your card limit although you are paying in instalments.<\/h5>\n

For example, if you are making a RM4,000 transaction using the payment scheme, you are spreading that amount over 24 months (RM167 a month), but RM4,000 is deducted from your credit limit. If you have a RM10,000 credit limit, you will now only have RM6,000 available for other transactions.<\/p>\n

That\u2019s all good, but if you have a low credit limit, this becomes a problem.<\/p>\n

\"Credit<\/a><\/p>\n

A fresh graduate earning RM2,500 a month would like to purchase the latest iPhone with a brand new credit card may put himself in credit danger. Assuming his credit card issuer only grants him RM5,000 credit limit on his first credit card, here\u2019s why making a big purchase on instalment plan is a bad idea:<\/p>\n\n\n\n\n\t\n\t\n\t
Credit limit <\/td>RM5,000<\/td>\n<\/tr>\n
Price of an iPhone 11 256GB <\/td>RM4,099<\/td>\n<\/tr>\n
Credit utilisation ratio <\/td>(RM4,099\/RM5,000) x 100
\n= 81.98%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n

The credit utilisation ratio in this scenario is high. Credit utilisation ratio is one of the key factors used to determine a person\u2019s creditworthiness.<\/p>\n

According to CTOS, 30% of a person\u2019s credit score<\/a> is based on his credit utilisation ratio. Though there is no ideal level of utilisation, try to avoid hitting above 80% of your credit limit. Some experts may even recommend staying below 30% but it depends on your limit, income and usage pattern.<\/p>\n

Of course, if the purchase you are trying to make is more than your credit limit, the transaction will simply be declined.<\/p>\n