Installment
Installment

The term “installment” is one of the hottest terms in business. Even if you’re not exactly a business type of person, there’s a really good chance that you may have already encountered this term yourself. The general understanding of most people when it comes to installment is that it’s a method of payment whereby vendors allow you to pay partial amounts of money on a specified interval and over the course of an agreed period of time. While this definition is true, a lot of people often stop here. Apart from knowing how installment payments work, they do not dive deeper into how it came to be and how it can help them manage their finances better. 

In this article, we will teach you all the things you need to know about installment payments. Quick side note, data suggests that credit card installments have quickly become one of the most common payment methods today. If you still don’t have a credit card and yet you’re interested in applying for one, check out this link to see your options for the best credit card signup bonus offers on the market right now.

What is an installment?

The term is often used to refer to installment payments. This is a method of payment where you essentially incur debt and promise to pay the amount over a certain agreed-upon period. The basic computation for determining the amount that you would have to pay each interval period is as follows: cost of the good/service divided by the number of installment periods. For example, if a phone costs $1,200 and you opt to pay for it over the course of 12 months, you would have to pay $100 each month as an installment. Take note that this computation does not account for interest rates. Interest is a type of added fee that is usually attached to installment payments. 

Typically, these are set at single-digit rates, such as 1%, 2%, or 5%. Basically, it’s a fee that you would have to pay for the convenience of installment payment. Because you won’t have to dish out a huge amount of cash upfront, interest is there to compensate for the delay on the part of the vendor in not being able to receive the entire payment as and when the good or service is delivered. Generally speaking, the longer you choose to pay for a good or service, the more you will be paying because of interest rates.

Now that you know what an installment is, check out these tips on how to use it to your advantage:

Choose a payment period that is appropriate for the good/service that you’re buying.

As we mentioned earlier, installments can be made over a period of time. Typically, this is offered in 6-month, 9-month, 12-month, 18-month, and 24-month options. If you expect to take advantage of the good/service for a longer period of time, choose an installment option that is more than one year. This allows you to spread the cost of your purchase over the lifetime or duration of the good or service. If it’s a relatively affordable installment, try to pay it off as soon as you can. 

Thus, if the good/service that you purchased is not extremely crucial or important, try to pay it off in 9 months or less. Vendors will be more reluctant if you still currently have an installment contract to pay. So, you’d want to pay off your debt as soon as you can to free up the chance of applying for a new one when you need it for more important purchases.

Be diligent with your payments.

Installment contracts are very strict when it comes to payment deadlines. Most of the time, even if you’re late by just a day, you will automatically incur penalties and additional fees. To avoid having to pay these unnecessary fees, be sure to pay your debt on time. Some companies will offer a program where you won’t need to pay for your final installment payment if you haven’t missed a single payment deadline. Here, you technically save money by being diligent with your payments.

Always ask for a computational breakdown.

Be cautious when you’re applying for an installment contract. Always ask the vendor for a breakdown to see how much you should pay exactly on each payment interval. Some vendors will try to take advantage of careless buyers by billing them more than what they actually need to pay. When it comes to this concern, it’s always better to be thorough and detail-oriented.

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