This post was updated on 15 May 2018 to include updated information.
According to the Singapore Department of Statistics, Singapore households had close to $10.6 billion in credit and charge card liabilities in the 2nd quarter of 2017. Approximately $2.2 billion of this amount is owed by people who have piled up debt that exceeded 24 times their monthly salaries, making it tough for them to pay it back.
Taking up interest-free instalments could very well be one of the reasons people get into such financial predicaments. You’ll find yourself being offered such deals in stores. You’ll try to debate the pros and cons, wondering what the catch is. You’re told that there is none because it’s interest-free. Sometimes, in the spur of the moment, we become weak and let ourselves be coerced into making the purchase – especially if it’s over a dream television set, European holiday or gym membership.
In your heart of hearts, you’ve always known there was more than met the eye. Before signing for another interest-free instalment plan, understand these seven things about how they will impact your long-term financial well-being, especially if used wrongly.
#1 You Are Being Mentally Groomed Into Thinking This Behaviour Is Fine; And Will Likely Make More Such Purchases
For many people, interest-free instalments offer an easy solution to purchase products and services that you want right away. By receiving instant gratification where you would often need to save for months to afford, you are actually being groomed into thinking such actions are acceptable and will likely make more purchases on similar terms.
You derive happiness instantly and this may lead you to recklessly continue down this path for other things that you also want to buy. The problem is that by doing this, the amount you have to repay each month will snowball, and you will not likely see a problem…until it’s too late.
#2 Your Available Credit Limit Will Be Lower
When you make a charge on your credit card, your available credit will be affected. What this means is that if you have a credit limit of $5,000, and your purchase is for a $4,500 gym membership over three years, you would only be allowed to spend $500 on that credit card, until you progressively make payments.
Of course, this is only a problem if you have one or two credit cards, or if you intend to make important big-ticket payments for a wedding or an upcoming holiday trip. You would hate to step into such a situation and realise you’ve used up your entire credit limit or have to use another card you don’t get as good a deal on at the last minute.
Of course, the TDSR (Total Debt Servicing Ratio) in Singapore means your score will also be impacted. And the amount it will be impacted by is the entire $4,500 gym membership over three years rather than the monthly $125 repayments.
This is because when you take up such a deal, the banks pay the companies the entire amount and you’re left with the debt to settle with the bank.
#3 You’ll Be Asked To Pay Some Fees, But You Already Kinda Knew This
In many cases, but not always, there will be some kind of fee worked into the charges you have to incur. This will likely be in the form of a processing fee or an administrative fee. In some occasions, they could even be a percentage of the amount you’re going to park under the interest-free instalment plan.
Again, you cannot really say you didn’t expect this was coming. The problem is that you will likely only know about this after discussing the whole plan and being sold on the deal. In other words, you’re already watching your favourite Netflix show on your new TV in your head by the time they actually tell you about these fees. By this time, you’d have invested too much time and emotions to let the commonly charged 1.5% to 5.0% fees affect your decision.
#4 If You Are Late In Your Payments, Expect Hefty Late Fees and Interest Charges
If you already find it hard to make repayments, it is likely you’ve already made too many purchases on instalment-free schemes. You should stop signing for any more products and focus on making your repayments.
This is because if you miss a payment, you’ll be charged a late payment fee as well as interest charges. You’ll also realise that this interest charge is not only for the amount that you couldn’t repay for the month, but for the entire outstanding amount with the bank, including the entire remainder of your purchase.
This also applies if you’ve simply forgotten to make payment on time. If you press hard enough, you may be able to get them to waive this if you’ve always been a good customer. Of course, this isn’t guaranteed, and you should not take any chances.
#5 Rewards (Air Miles, Cashbacks Or Points) Are Typically Not Given With Such Purchases
Most of the time, you will not receive any rewards for such purchases. You know there are some cards that do still give you’re the rewards, but they are few and far between.
This point is to be expected – the banks have made the entire payment upfront for you, and they need to earn some money. One way to “earn” is to limit the rewards they pay to you. Of course, they could have other methods, including the processing fees or late payment fees or even having a win-win payment structure with the merchants.
#6 Still Liable For Payments Even If You’re Unhappy With What You’ve Bought
For a long time, this wasn’t common knowledge. While it still flies under the radar, many were caught out when California Fitness abruptly closed down its branches in mid-2016.
Those who had opted to pay discounted memberships by getting deals spanning several years, and then using credit cards for instalment-free plans were burnt. They had to continue forking out monthly payments even though they obviously could not use their memberships anymore.
You have to understand that your payment terms is now with the bank instead of the merchant.
The same thing will apply if you buy an electronics product from Courts. If you’re not happy with the product, you cannot stop paying for it. You have to seek recourse with the merchant, Courts in this case, rather than with the bank.
#7 You Can’t Cancel Your Credit Card Now… So Expect To Be Slapped With Membership Fees
If you’ve signed for instalment plans spanning several years, you should be aware that you cannot cancel that credit card in that period, which means you will likely have to pay its membership fees. This is, of course, another way that the banks can earn revenue from you, their customers.
In some occasions, if you continue being a good customer or have spent a sizeable portion on other purchases on the card, they may still waive these fees. But don’t bank on it.
Prepayment is also usually not an option. Yes, banks do not want your money early – one reason could be to earn from membership fees. Other reasons could include continuing to entice you to make more purchases in the near-term.
No Such Thing As Free
Living in Singapore, you really should have guessed that there is never such a thing as free. There’s usually always a reason that certain products or services are being sold in a certain way.
On your part, you have to be prudent with your payments and only use interest-free instalments on products and services that you really require right now but cannot afford to pay for it at one go. These usually include essential furniture for your home. If it’s a luxury item, try to avoid such payment terms.
Missing any payments will mean being slapped with hefty fees and charges, so you’ll want to completely avoid that as the price of your product or service will only get more and more expensive with each new charge.
Exclusive Promotion Through SingSaver – For Standard Chartered, Citibank & American Express Till 31 May 2018
If you are looking to sign up for any Standard Chartered, American Express or Citibank cards, SingSaver has an exclusive promotion for a limited time till 31 May 2018
For every successful Citibank Card sign up (New Citi Customers Only), you will receive $150 in cash from SingSaver (Yes, that’s right, cash!) and up to $120 cashback from the bank.
For every successful Standard Chartered Card sign up, you will receive $150 in cash from SingSaver (Yes, that’s right, cash!) and up to $120 cashback from the bank.
For every successful American Express sign up, you will receive $100 in cash from SingSaver.
The cash rewards are given by SingSaver, and are on top of any existing promotions that may also be offered by the banks issuing the credit cards.
We are sorry if you read this article after 31 May 2018. We will update this post again if there are any further promotions.
How To Apply For These Cards
If you want to find out what’s the full list of credit card promotions that SingSaver is offering for the month of May 2018, you can check it out on their website here.
For easy reference, here’s a quick summary.
Citibank Credit Cards (New Citi Customers Only) – $150 Cash (yes, cash!) and up to $120 Cashback
- Citi Cashback
- Citi PremierMiles
- Citi Reward
- Citi SMRT Card
Standard Chartered Credit Cards – $150 Cash (yes, cash!) and up to $120 Cashback
- Standard Chartered Unlimited Card
- Standard Chartered Spree Card
- Standard Chartered Visa Infinite
American Express – $100 Cash
- American Express Singapore Airline Krisflyer Card
- American Express True Cashback Card
- American Express Krisflyer Ascend Card
- American Express Capitacard
2. You will land on the SingSaver landing page.
3. Once you click apply on one of the selected credit cards with the promotion, you will be brought to a page to fill up your name and email before you are directed to the bank’s application page. It’s important that you fill this page up before heading to the bank’s application page. Otherwise, it will not show that you applied through SingSaver.
4. Complete the bank credit card application form. Separately, you will receive an email from SingSaver for your next step.
– provide bank application ref. no
– or provide approval letter screenshot
– or no further action needed
This promotion ends on 31 May 2018.
For any further questions or clarification, you can email Singsaver at [email protected]