Forum: Ban interest-free instalment plans

To curb consumer debt, credit card companies and retailers should be banned from offering interest-free instalment plans (Chronic debt is a financial disease, Jan 2).

Not everyone who takes up such instalment plans can afford to pay up on time. It is a slow-burning debt trap, where banks and retailers profit by charging high interest when consumers do not pay on time, thus entrenching themselves in a cycle of debt.

Another common consumer mistake is making pre-payments for a service. Consumers who sign up for a gym membership that costs, say, $5,000 over 24 months are essentially paying for services that have not been used. If they take up a bank's instalment plan, they will still have to pay the remaining instalments even if the gym closes down.

Making a purchase outside one's financial means always spells trouble. Having an easy payment plan gives the consumer the faux confidence to make a big purchase that he cannot afford.

Instalment plans help to manage a person's cash flow so he does not have to use all of his savings on a single purchase. It does not mean he should make a big purchase that he does not have the money for.

The authorities must step in so that ordinary consumers will not lead themselves down a path of financial ruin.

Cheng Choon Fei

A version of this article appeared in the print edition of The Straits Times on January 04, 2020, with the headline 'Ban interest-free instalment plans'. Print Edition | Subscribe