6 disadvantages of buying in installments

Like any installment plan, installment plans can be good if used responsibly and you can comfortably pay.

However, the fact that one-fifth of consumers fall short of their installment purchase payments shows that not everything is good.

So, here are 6 downsides to installment plans.

1. Impulsive spending

Possibly the biggest problem with installment buying platforms is that they can be seen as encouraging impulsive spending.

With installment purchase agreements, you can actually take one of your purchases home and it's yours before you shell out some money for it. That might be tempting, but you wonder how many people can buy things they soon realize they don't really want and need, and now have to pay for.

2. Late payment fee

Late fees are a major source of revenue for installment purchasers.

If you don't have enough funds on your credit card for automatic installment payments and your card is declined, you usually have 24 hours to log into your account and pay the amount due, otherwise you will be charged late fees.

3. You have no choice about when to make the payment

Typically, installment purchase providers don't let you choose a payment due date - unlike paying with a credit card or personal loan.

Some people may prefer to have installment vendors create a repayment plan for you, while others may prefer to be charged on a day they know they have money in their bank account, such as payday.

Not being able to choose when to pay puts you at higher risk of credit card debt or your installment purchase payments fail and you incur late fees from them until payment is made .

Either way, you have to be prepared to face more fees than you need or want.

4. May affect your consumer loan

 If you're having trouble meeting your installment purchase payments, you may find your personal credit rating is low. This will affect your ability to get a mortgage, secure a car loan, or even open a credit card in the future.

While installment buying platforms typically don't require a credit check and don't affect your credit score, lenders, like banks, still consider installment purchases as a limit. credit line because you're borrowing money that you don't have.

Lenders will consider your installment purchases along with your other debts, expenses, and overall risk profile when deciding whether they should give you a home loan or other loans. other loans or not.

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5. You're Spending Money You Don't Have

Previous generations of Australians probably thought it would be a little weird to buy something without paying. Because that's what the installment purchase program is for.

It may sound a bit judgmental, but you can live a fulfilling life without resorting to credit for unnecessary purchases.

It's reminiscent of the line of thought that people buy things we don't need, with money we don't have, to impress people we don't like.

6. Check Minimum Credit Score

Most of us are not complete with credit scores. According to the Reserve Bank of Australia data, the average credit card balance is around $4,000 and the average interest rate is 20% per year, which is about $800 a year if you don't pay off your card monthly.

To put that into context, that's about half of the average household's electricity bill.

If you're already someone who feels it's too easy to spend and not so easy to repay, you can run into even more trouble with installment buying platforms as they usually don't require a credit check.