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0% Interest Instalment Payment Plans: What Your Bank Isn’t Telling You

0 interest instalment payment plan

Peter Lin

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That iPhone X you’ve been eyeing could be yours at an easily manageable monthly instalment! Without interest! All you need to do is whip out your credit card and sign up for a 0% Interest Instalment Payment Plan and you’re all set, right?

Wrong.

Here are 5 things your bank hopes you never find out about their 0% Interest Instalment Payment Plan… until it’s too late.

 

1. The full amount of your expenditure is still deducted from your credit limit.

Suppose you buy a 60” Samsung Smart TV and Harmon Kardon home theatre system after you realise it only costs you $250 each month over 2 years thanks to your newly signed 0% Interest Instalment Payment Plan. Say you then go out for an expensive dinner at Basilico to celebrate your new purchases, and a smug faced waiter hands you back your credit card and says it’s been declined!

Your card has been charged the full price of $6,000 and believe it or not, it’s not a mistake! Although your credit limit will slowly return to its original amount as you make your instalment payments, you’ll find yourself rather inconvenienced for the first few months.

With the Total Debt Servicing Ratio framework in place, it might also be prudent not to make any big purchases (even on a 0% Interest Instalment Payment Plan) since it’s the full price of the purchase that will be counted towards your 60% TDSR. The last thing you want is to not get your housing loan simply because you bought a $4,000 Mitsubishi Inverter air-conditioner system JUST BEFORE applying for the loan!

So, if you still want to go ahead with the 0% Interest Instalment Payment Plan, we recommend charging to a bank that you don’t really utilise. This way you’ll never need to worry about exceeding your credit limit because of the remaining outstanding amount on your credit card account.

 

2. You probably won’t get any rewards or cashback from the 0% Interest Instalment Payment Plan.

You may be charging large amounts to your card, but if you think most banks are going to be grateful for that, you’ve got another think coming. Instead, they withhold all their extensive rewards and cashback programmes from that transaction simply because they are already losing out by letting you have your big ticket items without charging interest.

Use our credit card comparison tool to find out the best rewards and cashback cards to keep active. You can use one of the others for 0% Interest Instalment Payment Plan.

As one bank put it, “Due to the cost incurred in stretching your repayment period, we are unable to provide further rewards or rebates to you.” Banks never miss an opportunity to make money off you, and 0% Interest Instalment Payment Plans are no different. This brings me to my next point…

 

3. Just because there’s no interest charge, doesn’t mean you don’t pay extra.

No bank is stupid enough to convenience you without getting something in return. Several 0% Interest Instalment Payment Plans come with an “administration fee” that’s a percentage of your purchase. This usually happens when the banks don’t have an existing agreement with the merchant (read: the merchant pays the bank to give you, the consumer, the convenience of a 0% Interest Instalment Payment Plans).

For example, DBS charges 3-6% if the purchase is made under a non-participating merchant.

 

4. You won’t be able to cancel the card until the instalment payment plan is fully paid off.

This means that if you’re charged an annual fee on the card with your instalment payment plan, you can’t threaten to cancel the card unless you’re willing to pay the balance of the outstanding amount of the plan.

Also, be wary about what kind of product you’re getting – recent closures of gyms and yoga studios reminds us how risky signing for a long-term membership can be. If you apply for a gym membership using a 0% Interest Instalment Payment Plan (IPP), though gym memberships are paid in monthly instalments, you’re actually paying the bank, not the gym.

Signing an IPP means the bank has already paid the gym the full amount of your membership. Even if your gym closes down before your membership expires, you’re still liable to pay the bank the full amount. The bank is frankly not going to help you with your claim against the merchant. It’s lose-lose for you, and win-win for the bank.

 

5. Banks charge a penalty fee for early repayment of 0% Interest Instalment Payment Plans!

Believe it or not, it will actually COST you to make full repayment of your outstanding amount to the bank. Of course, they’re going to sugar-coat it as an “administration fee” – because you’ve inconvenienced THEM by actually giving them YOUR money EARLY. Such paragons of humanity.

And just to prove how insane it all is, here’s a snapshot: DBS is $150, UOB’s costs $100, OCBC’s is $150 (thanks to reader Benuel for pointing this out!).

Have you had a bad experience with 0% Interest Instalment Payment Plans? Let us know!

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Peter Lin

I am the poster boy for reinventing one's self. I've been a broadcast journalist, technical writer, banking customer service officer and a Catholic friar. My life experiences have made me the most cynical idealist you'll ever meet, which is why I'm also the co-founder of a local pop culture website. I believe ignorance is not bliss, and that money is the root of all evil only if you allow it to be.

  • Scopion

    Great insight into the world of 0% installment payment plans. At point 1, my OCBC IPP wasn’t charged 100% but truly in monthly installment. Eg. The charge is reflected as 1/24 to remind me how many payments are left. At the same time, the credit limit is only reduced by 1/24 of the full price per month. I guess this only applies to certain participating merchants and their agreement with the respective banks.

    Perhaps the next comparison of IPP could be more merchant based, Courts vs Harvey Norman vs Best Denki?