Postponing credit card purchases?
Postponing credit card purchases? We often use our credit cards as a means of meeting our expenses. However, are we aware of the costs of using them to defer the payment of our purchases?
Deferring credit card purchases
The use of credit cards has many advantages, such as convenience, simplicity, ease of control of our expenses, the possibility of not carrying cash, adding discounts, deferring payments.
On the other hand, and especially when we defer payments, the use of credit cards often involves costs, and in many cases these are quite high.
According to a report by the Family Financing Observatory of the Banking Products Negotiation Agency, banks charge an interest rate of more than 20% per year in cases of financing for deferred payment with the card.
This cost weighs down the family economy, since it is much higher than the price of the money. That is why it is important to be informed of these costs before deciding to finance an important purchase in the long term.
It is not advisable to extend the term of financing via credit cards to more than 90 days. If we can manage this time, we will find that several entities offer the possibility of paying your purchases between 3 and 12 months without interest, as long as the amount does not exceed the monthly limit established in the contract.
To counteract the effect of interest, it is recommended not to use the cards as an instant credit provision, but only as a means of payment within 30 days.
If you need longer-term financing, you may want to consider the possibility of applying for a personal loan, whose interest rates are somewhat lower, averaging between 7% and 11% in most cases.
There are also some cases in which banks offer to finance your purchases interest-free, but in general they do not usually exceed 3 months.
Thus, the free deferred payment cards are a service offered mostly to customers of the bank who have other products contracted, and are intended to encourage purchases in certain establishments with which the bank is grouped in order to carry out the initiative.
The main incentive to use a credit card is that it offers the possibility of splitting the cost of the product purchased and paying it over several months, but the most important thing is to know how far to go into debt, and not to exceed our debt capacity so as not to have major headaches.
How does deferring payment of purchases work?
There is really no single model for deferring payment. As we will see later, in addition to the deferral implicit in the cards, there are purchase cards that directly have this functionality incorporated.
Generally, in the case of credit cards, these will allow us to defer one or more purchases in installments without affecting the rest of the payments made. In other words, deferred payments and immediate payments can be combined up to the credit limit of the product.
The possibilities of deferment depend on the particular conditions of each card, we will find from those that allow us short-term deferrals between two and 12 months, to those that incorporate possibilities of deferment up to 60 months. Obviously, the longer the term, the higher the interest charge, and therefore the higher the final cost of the purchase made through the interest on the financing.
Generally within the same card there are different deferment periods, although the most common are those already mentioned, between two months and one year.
It should be noted that some cards may offer what could be defined as a small grace period, i.e., the first repayment will not be required until a period of time has elapsed, usually one, two or three months. These grace periods do not usually carry any type of commission or interest.
How to make the deferment
There are different models to be able to carry out a deferment in the payment of the purchases as for the place and moment where we do it.
Not all cards allow all the options that we are going to review below although, nowadays, it is true that the great majority of cards that allow deferment if we are going to find practically all these options.
- In the first place, the postponement in the own office that is realized after the purchase and before realizing the liquidation of the card corresponding to the last day of every month or, in its defect, to the fixed term of liquidation.
- Another very common option is in the store or establishment where the purchase is made through the POS of the entity, or associates that allow this functionality.
- In many cases, ATMs also offer the possibility of deferment on transactions performed, in this case only on transactions generally performed.
- Both in electronic banking platforms and in mobile banking, nowadays payment deferrals on cards with this functionality are very simple to perform and fully operational.
It should be noted that in many of the cards that allow deferred payment of purchases, this operation can be performed even when we have made a purchase by paying the full amount. In this case we should request the deferment a posteriori on the purchase made, and the financing of the same in the requested terms would be reacted immediately.
Is deferred payment by credit card worthwhile?
The truth is that the deferred payment can be a useful tool but, at the same time, it can be a latent problem for our domestic economy.
The first thing we should always know is the type of card we have. This may seem silly, but it is really basic, since not all cards work in the same way when it comes to deferring payments.
It goes without saying that if we have, as they exist in the market, a card that allows us to defer payments up to three months without interest, using these deferrals is interesting as long as we do it having clear that we are going to amortize the deferrals without problems.
However, when the application of interest comes into play, the behavior of the cards changes radically.
It is true that we can find cards with lower interest rates below 15%, but it is no less true that another significant part, in fact the majority, of the cards on offer apply interest rates above 20% to deferrals, and in some cases above 25%.
This means, as you can understand, that we are really looking at a model in which financing is expensive, which brings you to the first point of this section: it is essential to know your card, not only from the point of view of the deferment and its conditions, but also the interest that will be applied.
The little trap of card deferrals
It is not really a trap, whoever has a card that allows a deferment of up to 60 months is aware, or should be aware, that the interest will end up almost doubling the cost of financing.
So rather than a trap, we should talk about a hook. The hook is obviously the ability to defer a particular purchase or service for a longer period of time. This allows that, for example, we can assume only with the credit card an amount that we cannot assume otherwise, and in addition, lowering the installments and extending the terms, theoretically affecting little to our card, with an installment for example of 50 € per month.
Up to here the beautiful thing of the matter, from here the application of interests on 72 monthly payments, to an average interest of 20%, is going to suppose to pay quite more than what has cost the postponed purchase.
It is true, and we must also take it into account, that the minimum percentages to which we can adhere when deferring a purchase, that is to say the minimum amount that we can pay, comes delimited either from prefixed percentages or, also, from a concrete amount. This makes that the scenarios are different, together with the fact that as we reduce the amount of the financing obviously the interests also go reducing.
In any case, what we must always be clear about is that a deferment that implies the application of interest for a longer term and a lower theoretical installment means a higher cost of the deferred amount.
It is true that, nowadays, there are cards that even return a part of the amount of the purchases independently of if these are financed to term or paid in an immediate way. It is also true that there are, as we have seen, other cards that do not apply interest during certain periods of time. In spite of these circumstances, and in any case taking advantage of them, the best recommendation is to try to apply as little as possible the deferment of payments whenever it involves an interest rate, and, in any case, choose to look for those cards that apply less interest to this financing.