What you need to know about easy payment plans

July 18, 2014

Easy Payment Plan allows you to buy things with a swipe of your credit card and repay the amount by installments - meaning that you will not have to worry about not being able to settle the full amount owed at the end of the month.

 

By Denise Chan

An Easy Payment Plan or EPP allows you to own that fridge you always wanted without having to pay the whopping RM3,000 price tag that comes along with it. Instead, you have the luxury of spreading the cost of that fridge over the next few months or years at either very low or sometimes 0% interest. EPP is usually offered by most banks’ credit cards with repayment periods typically ranging between 3 and 36 months.

This allows you to buy things with a swipe of your credit card and repay the amount by installments – meaning that you will not have to worry about not being able to settle the full amount owed at the end of the month. Paying your bills late could lead to the bank slamming you with high interest charges (normally 15% to 18% p.a.) on your outstanding balance each month.

You could actually think of EPP as a short term, interest-free personal loan – you can also save the money you would have used upfront to spend by putting it into an interest bearing account.

How an EPP saves you money
Let’s take a look at an example:
Darren wants to buy a new gaming laptop for himself which will cost himRM5,000 – a little costly for the average joe but hey, he’s a serious gamer! He has several payment options at his disposal:

Cash or debit card
If he makes the purchase using cash, he will definitely get the laptop, but a whopping RM5,000 will be deducted from his bank account instantly.

Credit card
If he makes the purchase by credit card, the result is similar except that he would have to fork out the RM5,000 when he pays his bill at the end of the month.

EPP
Making the purchase by committing to a 0% EPP with a 12-month tenure, will lead to his debt being spread over the 12-month period and Darren will only need to pay RM5,000/12 months =RM416.67 monthly.

So instead of paying RM5,000 in one go, Darren can put the excessive cash into a savings account to earn some interest; He can get up to 2%p.a. in interest, and if he’s being clever he can do staggered multiple tenure FD deposits and earn well over 3% p.a. !

But take note!

Let’s take a look at some of the things you should take note of if you’re planning to use a 0% Easy Payment Plan to make a purchase.

Makes sure it really is “0%”
It is actually fairly common for consumers to be charged an extra fee (normally around 3-4%) by the merchant when opting for a 0% Easy Payment Plan. Most will tell you so, however you should make it a point to ask if such a cost exists.

For example, an extra 4% on the RM5,000 laptop would cost you RM300. It is by no means an amount that can simply be “shrugged off” and this in turn defeats the whole purpose of engaging in a 0% interest repayment plan!

Missed or late payments
Banks and merchants rarely advertise this about their 0% EPP but if you miss a payment or pay the installment later than the due dates, the bank will cancel the 0%, and charge you with the normal interest similar to the credit cards instead.

You could put yourself in danger of getting into more debt that you can afford. So, before you engage in this easy payment plan, be sure to have a look on the terms and conditions carefully.

Minimum spending
Most banks have a minimum spending requirement to qualify for their 0% Easy Payment Plan. Check what these minimums are so as not to be caught thinking you could use an easy payment plan when you actually can’t.

Purchase from a participating merchant
Look for stickers or signs on retail outlets indicating that they offer 0% Easy Payment Plans for your credit cards. Alternatively, look up the websites of your banks for the list of participating merchants offering 0% Easy Payment Plans.

This was brought you by Denise Chan from RinggitPlus.com. RinggitPlus compares credit cards, personal loans and home loans to help Malaysians get more for their money.