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Budgeting 101

Guide To Understanding How Interest-Free Payment Plans Work In Singapore 

Interest-free payment plans can be a great tool to help manage cash flow, but only if you understand how to use it correctly.


This article was written in collaboration with DBS. All views expressed in this article are the independent opinion of DollarsAndSense.sg based on our research. DollarsAndSense.sg is not liable for any financial losses that may arise from any transactions and readers are encouraged to do their own due diligence. You can view our full editorial policy here.

As most of us would already know, credit can be both a boon and a bane for those who wield it. When used responsibly, credit is a good thing and at times, even essential – as it provides us with additional flexibility for managing our cash flow and making large payments more manageable.

For example, whenever we use our credit cards for a purchase, we are utilising credit. The issuing banks are paying for our purchases first while giving us an interest-free period of typically one month or more to pay our credit card bills.

However, if we don’t use credit responsibly, it can cause us financial difficulties as we have the ability to spend money we don’t have. If we are not disciplined in paying off our credit card bills promptly, we risk incurring hefty interest costs and falling into a spiral of debt.

Read Also: How Quickly Credit Card Debt Can Snowball And Leave You In Financial Ruin

How Interest-Free Payment Plans Can Help You Manage Debt

Credit card payment due dates are generally 25 calendar days from the statement date For example, if your statement date is 3 August, your payment due date would be 28 August. If you don’t pay your bill in full by the payment due date, you may incur late fees and finance charges.

If you are unable or do not wish to, pay your bill in full by the payment due date, one option that you can consider is to utilise interest-free payment plans. This allows you to consolidate some of the transactions that you have made on your credit card, and to spilt your purchases into interest-free monthly instalments.

For example, the interest-free DBS Payment Plans allow you to select up to 10 transactions (minimum of $100 per transaction) in your credit card accounts to consolidate and to convert into monthly instalment payment plans ranging from 3 to 24 months. This gives you more time to repay the full amount that you have spent, without having to incur unnecessary finance charges and interest costs.

Similar to how we use our credit cards, utilising interest-free payment plans should never be seen as an excuse to overspend on items that we can’t afford (and shouldn’t be buying), but rather, as a solution for a more efficient and possibly cheaper, payment schedule.

For example, many insurance policies offer policyholders the option of either paying monthly or annual premiums. If you signed up for an insurance policy, you may be offered the choice of either paying an annual premium of $1,150, or 12 monthly payments of $100  ($1,200 a year). Note that the annual premium is slightly cheaper overall but requires a higher lump sum payment.

One way to get the best of both worlds is to pay the annual premium with your credit card, and then converting the amount due to a 12-month interest-free payment plan. This way, you reduce your monthly payment to $95.83 ($1,150/12) instead.

Interest-free payment plans can also be a viable payment solution for big-ticket items such as buying home furnishings. For example, if you spend $9,000 on furniture for your new home, you may prefer to pay a monthly instalment of $1,500 for 6 months, instead of $9,000 at once.

Interest-Free Payment Plans Are Not Always Free

There is a misconception that interest-free payment plans are free. However, this is not always the case.

Interest-free payment plans usually come with a one-time processing fee based on the transaction amount. For example, you may be charged a 6% fee to convert your bill into a 24-month payment plan. If your purchase costs $5,000, this means the processing fee will be $300. The fee is paid upfront.

In Singapore, banks are required to state the effective interest rate (EIR) that you’ll be paying when they advertise an interest-free payment plan. This effective interest rate will take into consideration the one-time processing fee that you need to pay, if applicable.

Payment Plans Are To Help You Improve Your Cash Flow, Not An Excuse To Overspend

Similar to how we use our credit cards, an interest-free payment plan gives us the option of changing the payment schedule for the purchases we made. At times, this could result in us saving money (e.g. using it to pay for our insurance premiums).

Given the current economic climate, many of us may prioritise our cash flow and may be less inclined to make large, upfront payments when buying items. These may include necessary expenses including educational fees, insurance premiums, home furnishing, income tax bill and unexpected big-ticket items. Rather than pay for these items upfront or to take a loan, an interest-free payment plan can be a worthwhile alternative.

Read Also: Advertised Interest Rate Vs Effective Interest Rate. Here’s What Most People Don’t Realise Before Taking A Loan

Enjoy Interest-Free And No Processing Fee With DBS Payment Plan

If you intend to use a payment plan for some of your purchases in the near future, you will be glad to know that DBS is offering 0% in interest and processing fees from now till 31 December 2020. This is applicable for payment plans ranging from 3 to 6 months. In addition, if you take a minimum of three DBS Payment Plans from now till 30 September 2020, you will also enjoy a $40 cash rebate. Do note the terms and conditions for this promotion.

If you prefer to use a 12-month, 18-month, or 24-month payment plan, the one-time processing fee is 5% (EIR: 9.50%), 6% (EIR: 7.86%) and 6% (EIR: 5.98%) respectively.

Source: DBS Payment Plans 

It’s worth noting, however, that if you activate the DBS Payment Plans at the point of purchase at participating retail stores, you won’t incur any processing fee, even if you choose a 12-month, 18-month or 24-month tenure. For example, if you spend $2,400 at Challenger (a participating retail store) and choose to spilt your bill over a 24-month period through the DBS Payment Plans when making your payment, then you will be paying $100 a month for the next 24 months, with no processing fee incurred.

For merchants that are not part of the participating retail stores, simply apply for the DBS Payment Plans via digibank after you have make the purchase. This also applicable to your online purchases too.

Do note DBS Payment Plans can only be applied to payments made using DBS/POSB credit cards.

Using DBS/POSB Credit Cards Give You The Option To Convert In Into An Interest-Free Payment Plan

If you are unsure about whether you want to utilise the payment plan, you can still pay using your DBS/POSB credit cards first, before activating the interest-free payment plan after you have made your purchase, but before you need to pay your credit card bill.

This way, you get some additional time to consolidate your spending and to decide if you wish to split your credit card balance via an interest-free payment plan. You can also combine up to 10 eligible transactions (minimum of $100 per transaction) and to apply for a payment plan based on the total spend.

Lastly, do note that there are penalties for early repayment and card termination. To avoid incurring these unnecessary costs, ensure you are not looking to cancel your credit card anytime soon or are intending to repay your bill early.