You’ve likely come across credit card installment payment plans, especially when shopping or dealing with banks. But are they truly as convenient as they seem, or is there more than meets the eye?
In Brazil, credit card installments are a popular payment method and are available for many types of online transactions.
Some of the popularly accepted cards are Visa, MasterCard, Elo, and Hipercard.
Did you know?
In Brazil, nearly 55% of all purchases are made in credit card installments.
Before jumping into one of these plans, it’s important to understand how they operate, the savings you could potentially see, and which type of plan might suit you best.
Let’s break it down, starting with the fundamentals.
What Is a Credit Card Installment Plan?
A credit card installment plan is a financial tool that allows you to break down the cost of purchase into smaller, more manageable payments over a set period, rather than paying the full amount upfront.
Typically, when you use a credit card for a purchase, the most financially sound approach is to pay off the entire balance by the due date.
This strategy helps you avoid late payment fees and interest charges, ensuring that you maintain your credit card in good standing.
Moreover, paying your balance in full allows you to take full advantage of any rewards, perks, or bonuses that your card might offer, such as cashback, travel points, or discounts.
However, not every purchase is easy to pay off in one go, especially when it comes to high-value items like electronics, furniture, or even medical expenses.
This is where a credit card installment plan can be particularly beneficial. Instead of being required to pay the full balance at once, you can opt to pay it off in smaller, scheduled payments, typically over several months.
When you choose to convert a purchase into an installment plan, the credit card issuer usually offers a few different options.
You might be able to select the duration of the installment period—such as 3, 6, 9, 12, or even 24 months—depending on what best suits your financial situation.
How Does the Credit Card Limit Work for Installment Purchases?
Your credit card limit is the maximum amount you can spend in a month. When opting for installment payments, this limit is impacted in two ways:
Limit Considering the Total Purchase Value
For purchases that utilize your full credit limit, you need to ensure that your card’s limit can cover the entire value of the product or service.
For example, if you’re buying a TV worth $1,500, your credit card must have a limit of at least $1,500. If your card limit is $2,000, then after the purchase, you’d have $500 remaining for other transactions.
As you pay off each installment, your available limit will gradually increase.
Limit Considering the Monthly Installment
In this scenario, only the value of the monthly installment is deducted from your available credit limit.
Using the same example, if your TV costs $1,500 and you opt to pay in 10 installments of $150, you’d only need $150 available on your card to make the purchase.
6 Benefits of a Credit Card Installment Plan
Whether shopping online or in-store, using a credit card installment plan offers various advantages:
- Lower Monthly Payments: Spread your payments over time, reducing your monthly balance, often with low or even 0% interest and no extra fees.
- Flexible Payment Terms: Choose from various payment terms such as 3, 6, 9, 12, or 24 months, depending on the item and your card issuer’s options.
- Earn Rewards: Continue collecting points, cashback, or discounts as you normally would with your credit card.
- No Hidden Fees: Many installment plans come with no hidden fees, interest charges, or penalties for early repayment.
- Early Repayment Option: If your finances allow, you can prepay your installment amount, though you may need to settle the entire remaining balance, depending on your card issuer’s policies.
- Retain Other Card Benefits: Even with an installment plan, you can still take advantage of your card’s sign-up offers and other promotions, whether for online shopping, dining, or entertainment.
Can I pay in installments in Brazilian Real (BRL)?
Yes, you can choose to pay in installments using your debit or credit card, with options supported by American Express, Mastercard, Visa, Diners Club International, ELO, HiperCard, and Mercado Livre.
The number of installment options available will vary depending on the card brand you use.
Once you complete your initial payment, the total amount specified in your payment request will be secured by your institution.
The remaining balance will then be charged to your card monthly by your card provider.
Is It Better to Buy in Cash or Installments?
This decision depends on your financial situation. If you have room in your monthly budget to accommodate the installment payments, financing large purchases like appliances or long-term services might be a smart move.
On the other hand, paying in cash is often better for recurring expenses like groceries or fuel to prevent debt from accumulating.
Ultimately, the key is to maintain good financial habits and thoroughly understand the details of any purchase you make.
