Credit card installment payments
If you are a regular user of credit cards, surely you have heard of the option of paying in fixed installments without having to pay anything for the time you are financed. But do you know how interest-free months work on a credit card?
Many believe so, but to know exactly how interest-free months work, you should know other essential concepts that will help you understand this form of payment, avoiding getting into debt with purchases that at first glance seem harmless.
There is a tendency to believe that interest is the charge for the use of credit cards, however, this is not the case. For the use of credit cards, banks charge annuities, commissions, among other charges.
To understand how interest on credit cards works, it is necessary to consider that after the bank lends money to the client, the interest will be the payment for the time the user borrowed the money, that is, the time it took to pay the money he/she did not have at the time to finance the purchase.
Disadvantages of paying cash
When you have money saved and at the same time you pay every month the installment of a mortgage loan (mortgage), you have the dilemma of taking advantage of that saving to partially amortize the mortgage, that is to say, to use the money saved to cancel part of the debt with the bank.
By means of the extraordinary contribution of money to the mortgage (in addition to the money contributed in each monthly installment), it is possible to reduce the amortization term or the monthly installment paid on the mortgage. The advantages and disadvantages of amortizing installment or term are analyzed below.
By reducing the amount of the installment, the monthly payments will be more comfortable. In turn, by amortizing part of the loan, the total interest to be paid over the course of the loan will be reduced. On the other hand, the loan repayment term will remain unchanged.
It is better to reduce the installment or term of a mortgage.
However, if you are a totalera person and every month you pay off your credit card debt so as not to generate interest, the interest rate is not a factor that will affect you, instead you will have other benefits if you use the one that charges less annuity.
Likewise, the highest Total Annual Cost (CAT) without VAT is for the BanCoppel credit card with 85.7%, followed by the Afirme Clásica product with 66.4% and then Scotiabank with the Tradicional Clásica card with a CAT of 50.8%.
It is worth noting that 40% of purchases made during this season are paid with credit cards, according to data from the study: “Christmas Shopping 2014: Intentions and expectations of consumers in Mexico and Latin America” by Deloitte.
Disadvantages of buying on credit
The interest rates advertised are not always comparable because they may refer to different periods (monthly, yearly, biweekly or even other periods), nor are the interest rates included in the interest rate the commissions for opening or administration of the loan, as well as other associated costs such as insurance premiums.
By law and for the benefit of those interested in taking out a loan, all institutions offering consumer and home purchase loans are required to show the CAT (Total Annual Cost), even those that are not banks, such as department stores.
As its name indicates, the CAT is expressed as an annual percentage, and is an indicator of the total cost of financing applicable to all types of consumer credit and also to mortgage credit, which not only takes into account the interest rate, but also other costs that are equally important and that we often do not take into account, such as: amount of credit, ordinary interest, commissions, expenses, required insurance premiums, principal amortizations, discounts and bonuses agreed in the contract, and any other charge that the client must pay at the time of contracting the credit and during its term.