What is a 0% interest installment plan?
0% interest installment plans are typically a feature that is usually provided by credit cards companies. This is something that is quite familiar with shoppers who would use this feature to pay for expensive goods. Basically, it refers to taking a loan with no interest for a certain period of time. The amount here, however, must be charged to your credit card.
How do I use a 0% interest installment plan?
Depending on the card issuer, there are several methods that you can buy something with a 0% interest installment plan. Some banks require you to apply for the plan before you buy and wait for approval. Some are quite straightforward where you only need to call the bank and it is done for you. Once you get the approval, the amount in your credit card is locked for the duration. For example, if the amount is SGD$10,000 and the term is 10 months (SGD$1,000 per month), then your line of credit of SGD$10,000 will be locked for 10 months with SGD$1,000 charged to your card every month.
How does the 0% interest installment plan work?
Take, for example, the OCBC Cashflo Credit Card Instalment Plan. You can use this plan if you are buying anything between SGD$100 and SGD$999 where you can split the payment to 3 months. Meanwhile, you can stretch the payment to 6 months if you purchase something above SGD$1,000.
What is a qualifying amount?
There will be a minimum amount by which the bank will require you to pay per month in order to qualify for these plans. It can be from as low as SGD$100 and up to SGD$1,000 depending on the bank and the amount of purchase. You should only use a 0% interest installment plan if you are going to buy something of high value. For example, the DBS My Preferred Payment Plan has a minimum qualifying amount of SGD$100 per month while it is SGD$500 for the HSBS Instalment Purchase Plan, the UOB SmartPay Plan and the CIMB 0% i.Plan respectively.
What about interest rates?
Assuming that you start with a clean slate where you have no outstanding amount on your credit card bill. When you enter into this plan, the amount is charged to you on a monthly basis. Assuming that you charged SGD$100 on the first month. You pay off the SGD$100. Then, there will be no interest charged whatsoever. This goes on for the full duration of the term. However, if you are unable to pay a certain month, the outstanding amount that you owe will be charged the normal credit card interest rate. It makes better sense to split a large purchase into smaller fractions which makes your spending more manageable.