Would you pay through instalments to reduce the immediate costs, or pay the full amount to earn a higher cashback? - Seedly
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Anonymous

Asked on 10 Mar 2020

Would you pay through instalments to reduce the immediate costs, or pay the full amount to earn a higher cashback?

E.g I have 2.5k in the bank and I want to buy a slightly costly item (e.g 1k). Should I pay by 0% installment to reduce the pain on the wallet or full amount by credit card so I can earn the cashback. What would you do in the case and why? Btw, I am working so have monthly income.

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Hi anon,

I would just pay in full. There is no reason to pay in installments if you can afford it. Usually, even a 0% installment plan has some kind of fee built in it.

If it feels expensive, then I will probably just save a little more and buy it a few months later. And it probably means what I wanted is a want, and not a need.

The only things that you should be paying in installments (at least, to be prudent) would be stuff like a mortgage or a study loan. Such amounts are huge and this is where an installment will help reduce the sting. Furthermore, a mortgage provides a room over your head, and furthering your studies helps to improve your value and employability, so taking a loan for that is actually ok.

I would rather be debt free than bleeding money when the pay cheque comes in.

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Alexandria T.
Level 4. Prodigy
Answered on 02 Jul 2020

Speaking from personal experience, I would pay through instalments ( granted that it is at a 0% interest rate), especially if we are talking big ticket necessities that wouldn't normally fit into my monthly budget. Paying via instalments will allow me to fit the item's cost into my monthly budget and also keeps me accountable for the item I have purchased. I've seen a few paymemt providers that allow consumers to purchase using this method and the one I've been using for some time is hoolah. Think they are a local company and so far so good, their checkout process is quite seamless and their store directory is quite vast. You can check them out if you're interested, if not there is always the instalment option via credit cards and banks - which I find can be quite shady. So just be careful when choosing!

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I have a simple rule when it comes to purchasing big ticket items - buy only when I can afford to, and in full.

In your case, I will definitely buy the item only when I can pay in full, and I will do so accordingly. The reason is simple: Instalment gives you a false sense of comfort that you have the money available in the bank when it is not supposed to be there.

As a result, you may fall into the trap of spending more money that you should be. Without a doubt, this is also one reason why people get into credit card debts.

Since you have a stable monthly income, go back to your cashflow to find out how you can save more money every month to buy this item. Furthermore, create a monthly budget to help you. Instead of buying it today, make a budget to save some more money and buy it a few months down the road. Comprehensive financial planning helps to reduce such unnecessary pain.

More Details:

Understanding Your Personal Cash Flow

How to create a Monthly Budget

Here is everything about me and what I do best.

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Hi Anon,

For such items, it would be better to pay it upfront. If you feel that you can't bare the pain of paying it upfront now, I think it might be better to hold off the purchase for now, and only buy it when you are able to afford it in full after saving.

Personally I feel it's not a good mindset to have, where you have alternatives like 0% installment, cause what you are doing is spending your future money in advance, and that is not a good thing to do​​​

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Andy Sim
Andy Sim, HR Professional at a Financial Institution
Level 7. Grand Master
Answered on 10 Mar 2020

I would always pay off my bills in full because I only buy when I can afford them. Not sure whether the item is a need or a want, but you may want to reconsider getting the item and put it off to the future? You should have the ability to pay first (i.e. have enough savings), doesnt matter if you have a monthly income or not.

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