Credit card zero interest instalment plan may cost you more

I don’t like instalments. My wife on the other hand don’t dislike it. She said, “Why not? This is zero interest, no?”

I concurred, and we bought a Sony TV with credit card instalment. I wanted a 1 yr instalment (as it is easier to track), but the salesperson persuaded my wife for 3 years. The salesperson said, “3 years free instalmemt, why not?”

We concurred.  We bought our TV using credit card for 3 years’ free instalment. That was the longest instalment we had.

There is an annual fee for credit card. To apply for waiver, refer here (ref. 1). As a yearly affair, I would apply to waive the fee. However, this year was not successful.

My application was rejected and I have to pay $192.60. This was relayed by phone. I asked for a reason and the person does not know but said, ‘this was the bank’s decision’.

Usually, when you spent more, you would be given a waiver. It had been consistent for me. But this year is the first time I failed.

Here are the reasons I can come up with for the unsuccessful waiver.

  • Bank needs to charge a portion of its customer base for annual fee. The other portion gets to enjoy a waiver. To ensure that the annual fee charges do not affect its customer base (or subscription), bank has to select accounts that are unlikely to leave them.
  • Accounts with 2 or 3-year payment instalments are locked-in for that year. These account holders are not going anywhere. They are less sensitive to annual fee charges.
  • Accounts that charges their purchase to instalments are using credit cards’ value-added services, so they are likely to be charged an annual fee.

So, how much interest did I pay for my TV purchase? I bought it at $3k. I am charged annual fee of $193. For the first year, I am paying a 6.4% rate. If my waiver fails in subsequent years, I am paying 19.3% rate. This is provided that I do not have other instalment plans.

$3000 + $579 (3 years annual fees). This is 3579/3000 = 1.193. It is 0.193 fold increase of purchase price (or 19.3%).

Reference

  1. How to wauve UOB credit card membership fee (http://siekitchen.com/2020/11/07/how-to-waive-uob-credit-card-membership-fee/)

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