A credit card is a useful piece of plastic to have if you know how to use it properly. Part of knowing how it properly is being able to wisely decide whether to choose a straight payment or installment option for your purchases.
To find out more here’s a quick guide for credit card straight payment vs installment in the Philippines:
What is Straight Payment?
In a nutshell, a straight payment happens when you purchase items or hire services on credit and pay the credited amount in full on the next billing. As a rule of thumb, you should make straight payments for your credit card swipes whenever possible to avoid unmanageable debt.
Pros of credit card straight payment
1. Discounts for big-ticket purchases
When merchants want to make the movement goods like furniture, appliances, and electronics faster, they often give discounts for cash payments and straight payments. Be sure to ask the merchant if they have promotions like this. You may just score a good deal on your next big-ticket purchase.
2. Interest-free (listing price)
In most cases, credit card companies charge interest on top of an item’s listing price for deferred payments. While 1% interest may seem small, remember that this will be 1% interest monthly. So if you’re going to make installments for the next 24 months, you’ll be paying 24% on top of your purchase’s listing price. Skip the interest with straight payments.
3. Your limit resets upon payment
Since you’re paying out your debt in full every time, your limit is constant. This gives you more leeway for whenever you unexpectedly need to make a big purchase.
4. You can avoid overspending
People who make straight payments either already have the funds for their purchase or are sure that they will have the funds to pay when the bill comes. When your spending is bound to what you can realistically afford today, swiping in excess rarely becomes a problem.
Cons of credit card straight payment
1. You have to settle payment next month
Since straight payments have to be settled by the next billing, paying for big-ticket purchases in one go can really impact you financially. Unless you have extra, paying PHP20,000 for one transaction can be intimidating compared to paying in smaller increments over a period of time.
2. You can only spend on what you can afford today
Having your spending bound to only what you can afford today has its drawbacks when you need to make a big purchase unexpectedly. You won’t be able to make these purchases on straight payment if you know that you won’t have enough to pay in full next month.
What are Installment Payments?
As the name suggests, installments happen when you purchase items or hire services on credit and pay the credited amount in increments of (typically) 3, 6, 12, or 24 months. While it’s usually better to stick with straight payments, installments make big-ticket purchases possible even when you don’t have enough to make full payments today.
Pros of credit card installment
1. 0% interest promos
While a lot of deferred payment schemes do come with interest, credit card companies can have 0% interest promos with their partner merchants from time-to-time. The best time to do installments is when you don’t need to pay interest on top of the listing price.
2. Buy now pay later option
Credit card companies can also have promos that allow you to take home the items upon swiping and only start paying installments two months after.
3. Emergency fund
Remember that your credit card shouldn’t be used as an emergency fund. However, when you’ve exhausted all other options and you are still in dire need, it’s good to have a line of credit that you can pay off in installments just to get by. This is especially in critical situations like a sudden need for hospitalization.
Cons of credit card installments
1. Promos aren’t that common
Not all credit card companies offer 0% interest and buy now pay later promotions. When they do, it’s usually for specific partner merchants so you may not be able to avail of these promos often.
2. You miss out on cash payment discounts
Unlike with cash pay or straight payments, discounts to the listing price of big-ticket items aren’t offered to installment options.
3. Your limit is affected
If you buy a PHP40,000 item and your credit limit is PHP50,000, you won’t be able to swipe for anything in excess of the available remaining credit until the debt is fully paid. Of course, your limit does build back as you make repayments.
4. Can lead to bigger debt
If you are suddenly unable to pay for your installments, you will be charged both monthly interest and penalties on top of the face amount. If not managed properly, the compounding fees can badly impact you financially.
Pay Credit Card Bills Online
Whether it's for a straight payment or installment plan, it's never wise to miss a credit card payment. Avoid penalties, interest, and other fees by always paying on time. You can stay safe at home and use your Coins Wallet to pay your credit card bills online.
